Succession Planning with Digital Assets

Background

Not so long ago, the possessions that people left to their estate after passing away were physical and tangible like cars, cash or jewellery. These days however people produce a significant digital footprint consisting of accounts, profiles, and digital assets. New assets and investments such as cryptocurrencies, NFTs, loyalty program accounts and social media accounts are all changing the succession planning process. Existing tools like Wills and trusts remain effective to deal with these digital assets. However, this is not without some new challenges and issues that must be considered to ensure your estate is administered as you intend.

Challenges and risks unique to digital assets

Traditionally, cash-based assets that are administered and held by paper titles can be transferred to the beneficiary/executor/trustee of a deceased person through relevant documentation often governed by third party registration processes. However, ownership of digital assets is usually self-managed through passwords, PINs and other verification processes through a purely electronic platform. Furthermore, digital assets like cryptocurrencies and NFTs are based on a decentralised blockchain, allowing for anonymity and security by only being accessible with a user’s private keys that allows that user to access and manage their funds. With the information required to access these digital accounts and funds generally being stored on a computer device like a digital wallet or USB, or not being recorded at all where a person merely decides to memorise their passwords, there are many unique challenges that must be overcome for ensure a smooth administering of a person’s digital assets.

Many digital assets and accounts are held in foreign jurisdictions or globally, which raises jurisdictional issues from a succession planning perspective. Consequently, there is no overarching legislation which governs access to digital assets and how to deal with a deceased person’s accounts and finances. Asset specific documents, such as a company’s privacy policy, may or may not allow access to be granted to someone like an executor. Due to the well-established principle of decentralised blockchain technology having no intermediary that can exert control over users, it is therefore extremely important that matters relating to digital assets are dealt with specifically in a succession plan.  

How to plan for access to your digital assets in the event of incapacity or death

To ensure your executor and representatives can gain access to the various accounts and profiles that you deem important, a list should be made detailing what you have and the location of, and how to gain access to, each of these. Keep a safe record of relevant information like usernames, passwords, PINs and locations before storing this information in a secure place. It is also wise to unsubscribe or delete unused accounts to safeguard any potential risk and maximise the efficiency of the succession planning process.

This is all the more critical when it comes to cryptocurrencies and blockchain-based assets. If these are not dealt with correctly, they can be difficult to recover, because when access to a digital wallet is gone the asset is lost forever. Information such as where you hold these assets, how much you own, how to access them and what you want done with them should all be recorded.

Once this preparation is in place, your executor or representatives should be told where this list is and be given instructions on what to do with each of these assets. This is where a well-drafted Will comes in and clear instructions are put in place. We often recommend keeping your instructions in relation to your digital assets with your Will in a secure deeds storage to avoid any miscommunication.

Digital assets and your Will

Your Will should define and identify, or at least make reference to, the digital assets that you deem important, before providing executors/representatives with relevant instructions to deal with them. You should ensure that your executor or representative is someone who is familiar with technology as they will be managing and dealing with your digital life and assets after you pass away.

The executor/representative should also be told where the list of passwords and access information is however, this is generally not included in the Will, as Wills can become public documents that are assessable to the public. As noted above, we recommend the digital asset instructions be stored alongside the Will in a secure deeds storage.

Other options for succession planning to deal with digital assets include to appoint a trusted person to manage them through a power of attorney if you become incapacitated. Additionally, holding digital assets within a trust structure, that is then dealt with under the Will, can provide for greater asset protection and succession planning going forward.

Key takeaways

There are numerous challenges to overcome when planning and administering an estate containing digital assets. With our lives becoming increasingly digitised it is important that this process is conducted diligently and effectively. If you require assistance in succession planning with digital assets then please contact our office:

Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E: pgray@ha.legal

Alasdair Woodford
Special Counsel
T: 03 5225 5217
M: 0436 456 144
E: awoodford@ha.legal

Ryan Popovski
Lawyer
T: 03 5226 8572
E: rpopovski@ha.legal