In the era of digitisation, managing our digital lives has become as important as managing our physical assets, which in this case, the aforementioned ‘assets’ have fully transitioned into a digital format.
From online banking to cryptocurrency investments, many of us possess valuable digital assets that need careful consideration when planning for the inevitable.
Posthumous digital management is a critical aspect of estate planning and it serves as a framework to ensure that our digital financial assets are properly secured and passed on to relevant parties after death. But what does this process entail?
What is Posthumous Digital Management?
Posthumous digital management is the process of managing and distributing digital assets after an individual’s death. This includes online banking accounts, cryptocurrencies, online shopping accounts, and other digital assets that hold monetary value.
The Increasing Prominence of Digital Financial Assets
Digital financial assets can mean anything of monetary value stored in a digital format. It includes cryptocurrencies, stocks, and online banking/investment accounts.
The growing importance of digital financial assets is also reflected in the increasing number of regulatory frameworks currently being developed to govern their use. For example, the Digital Financial Assets Law (DFAL) in California aims to provide a comprehensive regulatory framework for digital financial assets, including licensing requirements and consumer protections.
However, the process of asset distribution is relatively more straightforward for other digital financial assets, such as bank accounts.
What Happens to Your Bank Account After Death?
When a bank account owner dies, any joint owner or beneficiary will typically retain ownership of the account under the right of survivorship. In the absence of an appointed heir, the account will become part of the owner’s estate or is eventually passed over to the government to be handled in a ruling court.
What About Stocks and Cryptocurrencies?
Cryptocurrencies, in particular, pose a series of challenges due to their decentralised nature and the requirement of private keys for access. Unlike traditional financial assets held in banks, cryptocurrencies can be easily lost if the keys are not properly passed on or secured.
When an individual passes away, their digital stocks and other investments are typically transferred to their heirs through a process called probate. Probate is the legal process of settling the estate of a deceased person, including distributing their assets according to their will or the laws of the jurisdiction where they lived
On the other hand, cryptocurrencies do not have a responsible body that can grant access to an executor. This means that unless the deceased person has left clear instructions about where their cryptocurrency is stored and how to access it, the currency is likely to be lost forever.
It is also important to note that the transfer of cryptocurrencies after death may not be as straightforward as other types of assets. Since cryptocurrencies are stored mostly on blockchain technology, a lost password might make the holding account almost impossible to recover.
What are the Challenges in Posthumous Digital Financial Asset Management?
The digital realm introduces complexities that traditional estate planning may not adequately address. In some countries, many forms of digital financial assets still do not have laws and regulations in place to properly govern their distribution after the owner’s death. Some major challenges include:
1. Accessing Multiple Accounts & Passwords
It is not unlikely for someone to have multiple online accounts with various passwords and that makes it difficult for loved ones to identify and access them all after their passing.
Having established this, heirs may not be aware of all existing digital assets of the deceased.
2. Complications With Decentralised Assets
Decentralised assets such as cryptocurrency, are not treated as traditional money in the context of estate planning. Typically, one would have a designated beneficiary on a bank account or property, and upon death, the assets would be allocated to the designated beneficiaries. However, decentralised assets are in a whole different category of their own with separate laws and regulations dedicated to decentralised asset distribution after death.
3. Legalities of Digital Financial Assets
Laws and regulations regarding inheritance and property rights may not adequately address digital assets. The legal nature of digital financial assets is also a subject of ongoing debate. In some jurisdictions, digital assets are considered securities, which are regulated by securities laws. In others, they are treated as commodities or currencies, subject to different regulatory frameworks
Strategies for Securing Digital Financial Assets
Proper estate planning can help to alleviate some of the challenges associated with posthumous digital financial asset management. Here are some strategies to consider:
- Having Proper Documentation: Create a comprehensive inventory of all digital assets, including login credentials, account numbers, and any relevant instructions. Store this information in a secure location and ensure that only your designated heirs know how to access it.
- Digital Executor: Appoint a digital executor in your will or estate plan. This person should be trustworthy, and given clear instructions on how to manage your digital assets after your passing. Work with legal professionals to ensure that your executor has the necessary authority to carry out your wishes.
- Encryption and Security: Encrypt sensitive information and use strong, unique passwords for each online account. Consider utilising two-factor authentication where available to add an extra layer of security. Additionally, explore options for storing private keys and access codes in secure hardware wallets or offline storage solutions.
- Legal Considerations: Familiarise yourself with the laws and regulations governing digital assets in your jurisdiction. Work with legal experts to update your estate plan accordingly, taking into account the specific requirements for transferring digital assets to heirs.
- Communication: Openly communicate your wishes regarding digital assets with your loved ones. Ensure that family members are aware of their roles and responsibilities in managing your digital assets after your passing.
In the absence of such contingency plans, managing digital financial assets after death can be challenging and time-consuming. For instance, if someone dies without leaving access information for their digital assets, these assets may be lost forever or inaccessible to the heirs.
Bottom Line
As our lives become increasingly intertwined with technology, it is wise for us to consider posthumous digital management as part of our estate planning efforts. After all, the assets that we hold digitally is just as valuable as our physical possessions.
By taking proactive steps to secure and document our digital financial assets, we can ensure a smooth transition of wealth and memories to future generations. With careful planning and the right strategies in place, we can safeguard our digital legacies for years to come.
