When someone dies, their assets need to be identified and collected by the executors/administrators so they can be disposed of and distributed in accordance with any testamentary document or the rules of intestacy, which apply when a person dies without a will.
Identifying a person’s assets can often prove difficult. Due to the fast growing pace of technology and assets becoming more digitally based, the task of identifying assets is becoming increasingly complicated.
There is no legal definition as to what digital assets are and what they include but they are typically recognised as an asset which only exists in electronic form. This means there is no automatic paper trail indicating the asset exists. Digital assets include cryptocurrency, such as bitcoin, photo-sharing, websites and domain names.
When planning for death, people are failing to recognise the importance of itemising their digital assets.
Why does this cause problems when you die?
Failing to recognise digital assets in estate planning can lead to loss of value for intended beneficiaries, which could result in disputes.
Without full access to digital assets (wallet ID numbers, passwords etc) it is virtually impossible to prove they exist. In the absence of this information, the executors are likely to find themselves in an impossible position of proving the assets exist and belonged to the deceased. This will effectively result in the assets being lost. This applies to anything stored electronically.
Unlike “traditional” assets, probate is not always required in order to close down or transfer digital assets/investments. If the executors are not made aware of the assets existing, a person with the knowledge of their existence could liquidate the assets for their own benefit without anyone ever knowing.
How do you leave details of your digital assets?
The obvious way is to leave username and password details in a will or a safe place, to be passed to the executors. The problem with this is that people are usually encouraged to change their usernames and passwords on a regular basis and if they are not updated on any record, your executors will have no way to access the assets.
There are various methods available for storing access details of your digital assets, including private keys and multi-sig technology.
There is no right or wrong, way to store digital assets but it is important that you manage them in such a way that they can be easily identified by your loved ones/executors.
Do digital assets fall within an estate for tax purposes?
If the asset is recoverable, identifiable and holds a value, it will be subject to Inheritance Tax and declared as an asset of the estate.
When the asset is liquidated, if any gain has been made on the asset from the death value, to the time it is liquidated/transferred, it may give rise to Capital Gains Tax.
Individuals are becoming increasingly dependent on electronic storage and cloud storage. Everyone is reminded how important it is to password protect all electronic devices and storage for fear of being hacked but how many people actually store their passwords where their loved ones or executors can have access in the event of death?
The above highlights the importance of ensuring your assets are well documented during your lifetime. It will not only save time and money but will also make the task of identifying and accessing your assets less stressful for those left behind.