Insights
Periodic insights from our Investment and Private Client Teams on a broad range of investment and advice-related topics
Published by the Private Client Team at KJ Harrison Investors
Our digital devices are wonderful things, aren’t they? We can shop, bank, conduct business meetings, connect with old friends and meet new ones, date, learn, research, play, write, record and store our memories, and on and on. Smartphones and other devices, which today have the power and storage capacity that decades ago only supercomputers had, have become intrinsic parts of our social, business and financial lives, and that is largely a good thing.
But what happens to them—or, rather, to all the data that is stored digitally on them and in the cloud—when we die?
The fact is, “dying digitally” can get extremely complicated for your loved ones, if you don’t take it into consideration in your estate planning.
Let’s say you’ve done just about everything else right. Your estate plan is clear and nearly comprehensive. You have a will. You have designated powers of attorney for your finances and your health. You have appointed an executor or executors. You have named your beneficiaries (we will assume, for the purposes of this hypothetical example, that the primary one is your spouse). You have made clear plans for the tax-efficient transfer of your estate. But no one except you knows the passwords to your phone or your computer, or to your social media, banking, and email accounts, or to your various apps—because, well, those are private, and you have taken to heart all the warnings that you should never share them.
And then you die.
The fact is, “dying digitally” can get extremely complicated for your loved ones, if you don’t take it into consideration in your estate planning.
Your spouse cannot access your phone or your computer. So, they can’t access your bank accounts or investment portfolios, and they cannot manage all those bills you used to look after online. They cannot cancel the myriad app subscriptions you have amassed over the years, and charges keep getting made to your credit card; even if it’s a joint credit account, your spouse has no easy way to cancel the charges. They cannot get into your email accounts; the same for your Facebook, LinkedIn and other social media. If you hold cryptocurrencies or non-fungible tokens (NFTs)—well, your survivors are out of luck, too.
Maybe your spouse does know the password to your personal computer (or, like many people, you don’t have a password for it at all). That might help, but probably not much, since they don’t know your other passwords. Even if they do, it might not solve the problem if the site or service uses two-factor authentication, which typically requires access—you guessed it—to your smartphone.
I have seen this happen several times, and it can be a nightmare for families who are already dealing with the complexities of estate transfer and the emotional toll of grief. In some cases, they will have to get a court order to gain access to the deceased’s phone and/or digital accounts, which is time-consuming, stressful and expensive.
A similar quagmire can arise when someone is no longer mentally capable of managing their own affairs in either the physical or the digital world. Alzheimer’s and other neurodegenerative disorders are on the rise as our population ages, and many people are creating living wills that set out their wishes for end-of-life care. But are they also including their wishes for their digital assets if the time comes that they can no longer look after them?
When it comes to dying digitally, the law itself is complicated. A decade ago, the United States passed the Uniform Fiduciary Access to Digital Assets Act, which gives fiduciaries (executors, agents under power of attorney, and so on) the right to legally access digital assets, and most states have adopted the legislation. In Canada, however, while a uniform access law model exists and a handful of provinces—New Brunswick, Saskatchewan and Prince Edward Island—have adopted it, many, including Ontario, have not. That can make legal access to digital assets for survivors very challenging, indeed.
So, how can you ensure that your loved ones are not left with a digital mess? Here are a few ideas:
- Make a list of your digital assets, which can include everything from social media accounts and cherished photographs to financial information and subscriptions. You might be surprised at how much of your life (and your money) is online. This inventory should include your usernames and passwords for each account; you might also consider creating and listing backup codes for accounts that require two-factor authentication.
- Create a digital estate plan. This can be an addendum to your “physical” will that outlines what you want to happen to your digital assets after your death—who has access to them and what they can do with your accounts and subscriptions. A digital will can help avoid putting your survivors in legal limbo in jurisdictions where there is no clear law. It can also include the designation of a “digital executor,” who is specifically tasked with managing your online assets after you have passed.
- Develop a plan for your passwords. This is where it can get really tricky. The simplest solution is to simply share your passwords before you die with someone you trust—a spouse, a lawyer or a close friend. But that requires an exceptional level of trust that few of us might be comfortable granting to anybody.
One alternative is to keep a list of all your account usernames, passwords and personal identification numbers (PINs) in a secure place—for instance, a safe at your home to which your lawyer will have the combination. This approach can work, but only if you remember to continually update all the information stored in the safe.
Password protection software or services offer a more convenient option because they can securely store all your passwords and account information in one (digital) place. You can access them at any time using just one “master” password. Bear in mind, however, that security is a relative concept; there is always a risk, however small, that your information could be hacked. As well, you must make arrangements to share your master password after your death. To do that, some people “split” the master password and share only parts of it with trusted individuals. For example, you could give half the master password to your spouse and the other half to your estate lawyer; upon your passing, they would be authorized to put the two halves together and thereby gain access to your password list.
- Use the tools available to you. Many service and device providers offer features that allow you to grant at least some access to your digital assets to others in the event of your death. For instance, Apple and Facebook let you designate a “legacy contact,” and Google allows you to name an “inactive account manager.” Bear in mind, however, that the level of access these services grant can vary widely.
The fact is, we are spending more and more time living digitally, and our digital footprint gets bigger every day. So my advice is to spend some time preparing for “dying” digitally and discuss how you want to manage your digital assets with your legal and financial advisors. There are several strategies that strike a balance between privacy and the need for a smooth transition, and there is no single “right” approach for everybody. But the important thing is to have a strategy—and to make it part of a comprehensive and digitally aware estate planning process.
To learn more or ask questions, contact us.
