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Password sharing: ensuring the smooth transition of digital assets to heirs

By Steve Sokić, Group Head of Private Wealth at IQ-EQ

The Covid-19 pandemic has accelerated the use of online services and digital assets, with demand only expected to rise.  Digital assets, or assets that exist only in electronic form ranging from photos, to email and social media accounts, to cloud storage services, or even cryptocurrencies, are playing a larger role in modern estate and trust planning as well as their administration. A recent survey carried out with STEP and IQ-EQ, found that 90% of respondents think that client demand for advice about digital assets will increase, but only 6% of estate practitioners agree that there was a straightforward process for accessing digital assets stored in the cloud.

As digital assets begin to make up a larger portion of estates and trusts, practitioners need to ensure they can support their clients in dealing with this newer asset.  According to the survey, a quarter of clients frequently experienced difficulties in accessing digital assets on death or incapacity of a family member.  Practitioners need to now focus on questions around obtaining and transferring digital assets to heirs after death, as well as ensuring that these assets pass to the intended beneficiaries smoothly.

Digital asset concerns 

There are a number of common problems that arise when dealing with digital assets.  Data privacy and data protection is a significant concern, with 35% of respondents stating that they had dealt with questions around this, while other key concerns include transfer of digital assets to heirs (29%) and obtaining access to the digital assets of a deceased person (27%).

Clients frequently experience difficulties accessing digital assets on death or incapacity of a family member – causing unnecessary distress and frustration at an already challenging time.  For the family of the deceased, getting access to pictures and messages stored on social media, email and cloud storage services is made even more complicated by the lack of cooperation from service providers, such as Apple, Facebook and Google.  For those invested in cryptocurrencies, gaining technical control over the digital tokens is difficult. This is especially relevant in trusts, as experts recently agreed that digital assets do have the ability to be transferred within a trust and a trustee has the power to hold them. Trustees will need to have a detailed understanding of cryptocurrency wallets, and how ownership can pass to a beneficiary within the realms of the trust.

Third-party service providers

The rise of digital assets has also meant that trust and estate practitioners have to work more closely with third-party cloud-based service providers.  These third-party service companies are often key to managing digital assets.  However, they also present a number of obstacles to both trust and estate planning and administration mainly around security measures that restrict access.  The survey found that the key obstacles included password protection (69%), the lack of clarity around digital property rights (67%), and privacy and data protection concerns (51%).

In order to avoid these obstacles going forward, greater collaboration will be required with cloud providers to find more effective solutions for post-mortem access.  While some pre-planning tools, such as Apple’s ‘digital legacy’ tool for its iCloud service, may help in estate planning, cloud providers need to establish clear procedures for trust and estate administration.

Responsibility for a smooth post-mortem transition also falls on trust and estate practitioners who need to raise awareness and help clients with planning for digital assets.  There is currently a wide variation in policies, practices and tools for dealing with clients’ digital assets, which highlights the need for more education for practitioners on best practice.  Estate practitioners need to engage with the digital frontier to ensure a smooth end of life process for clients’ estates.  This includes ensuring digital assets are included in trusts and wills, pre-planning tools are put in place where available, and that clients have shared passwords to ensure that heirs can access digital assets.

Determining a straightforward way to address the wide variation in policies, practices and tools for dealing with clients’ digital assets is essential for the future, especially as digital asset ownership continues to rise.  With digital assets becoming a larger part of trusts and estates, practitioners need to know how they can support their clients in a smooth transition.

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