As consumers build their wealth, assets are typically tangible: cash, investments, property, cars, jewelry, art. But increasingly we’re adding a new type of asset to the mix: digital assets, whether in the form of cryptocurrency or a new asset class, NFTs.
We’re going through the biggest wealth transfer in history right now, with an estimated $16 trillion expected to change hands in the coming decades. While it’s easy to hand over the reins of a physical asset in the event of an emergency or death, it’s not as simple with digital assets.
A new Angus Reid study commissioned by Canadian online will platform Willful finds that only one in four consumers have someone in their life who knows all of their passwords and account details, which begs the question: Will consumers be prepared to pass on digital assets, or will billions in virtual goods be stuck in the digital ether?
While it’s easy to hand over the reins of a physical asset in the event of an emergency or death, it’s not as simple with digital assets.
Digital assets have been dominating the news cycle in 2021. While cryptocurrency isn’t new, it’s attracted a lot of attention in the past year because of its skyrocketing value, promotion from prominent figures like billionaire Elon Musk, and bitcoin offerings from traditional financial firms like Morgan Stanley. If you hold any type of cryptocurrency, the only way to access it is via a private key -- typically a 64-digit passcode. No private key, no access to the virtual currency.
There have been many stories reported about people who purchased bitcoin and would be millionaires today if they hadn’t thrown out their hard drive or lost track of their key. One high-profile case is that of Gerald Cotten, the founder of cryptocurrency exchange Quadriga. When Cotten died in 2018, he took with him the private keys to over $250 million in client assets.
Consumers have also been inundated with stories about NFTs, or non-fungible tokens, which are digital assets hosted on the same blockchain that makes cryptocurrency possible. To most, it seems absurd that artist Beeple could sell a $69 million piece of art through a Christie’s auction, or that a virtual home in Toronto could sell for over $600,000, or that people would spend over $200 million trading virtual NBA highlights like we used to trade baseball cards. But this new asset class is proving that digital assets can be as valuable if not more valuable than physical assets -- and similar to cryptocurrency, they likely require a private key to access them.
When someone dies, they either have a will that dictates how their assets will be distributed, or, if they die without a will, a government formula outlines how their assets will be divided. While a will outlines who should receive what, it typically doesn’t have an up-to-date asset list, nor does it contain passwords or access keys. There’s an estimated tens of billions in unclaimed assets sitting in banks today as a result of a family or executor not knowing about those accounts following an individual’s death.
But an executor can do due diligence by calling financial institutions to double-check whether the person held accounts and get access to those funds, which typically requires providing copies of the will and/or death certificate. With digital assets, it’s not as simple as calling the bank and finding out a relative had a valuable NFT. There’s no directory or central body that governs NFTs or cryptocurrency -- it’s purposely decentralized, which is great for privacy but less than ideal for family members who want to figure out if someone held valuable digital assets.
And it’s not just about knowing digital assets exist -- it’s about knowing how to access them. A recent study from the Angus Reid Forum, commissioned by Willful, showed that consumers under 35 are way less likely to have shared account access with loved ones (19% of those under 35 have shared account info, compared with 32% of those over 55). This makes sense, since the younger you are, the less likely you are to think about passing on assets after you die. But this tech-savvy younger demographic may leave their families in the lurch if something happens.
So what can consumers do to ensure their digital assets are protected? First, consider using a password manager like 1Password -- which can store all of your account information, logins, private keys to digital assets and any other key information -- and share the master access password with your executor or store it with your will.
While this can ensure easy access to your accounts in an emergency, Lee Poskanzer, the founder of Directive Communication Systems, says it can also put your family or executors at risk, highlighting that in many cases, website and app owners explicitly prohibit password sharing in their terms of service, and privacy laws in some jurisdictions prohibit account holder impersonation (in the U.S., that’s covered by the Stored Communications and Electronic Communications Privacy Act). Not to mention, accounts increasingly require two-factor authentication, which may not be easy to confirm if executors don’t have access to the person’s smartphone.
Directive Communication Systems’ platform helps manage the transfer of digital assets upon death, and Poskanzer says they don’t collect passwords for this reason. Instead, they work with the estate to provide content providers (Google, social media platforms, etc.) with required documentation, which can include a death certificate, obituary, ID or other documents. Upon meeting those requirements, which vary by company, content providers provide a data dump of an account’s contents, making them available via the cloud.
Second, consider using a digital wallet or exchange to store your digital assets -- if your family has access to that, it may also include access to your private keys, depending on the wallet's features, or the exchange itself may have a death-management process.
For example, Coinbase clearly outlines what an executor or family member can do to retrieve digital assets in case of the death of the account holder. As a backup, you can store your private key on a physical piece of paper and ensure it’s stored in a safe deposit box, fireproof safe or other safe place your executor can access in the event of your passing.
Third, create an up-to-date list of your assets that your executor and/or key family members have access to -- this should include physical and digital assets, and should be reviewed and updated either annually or when you acquire a new asset or change financial institutions. Finally, create a will that clearly outlines how you want your assets to be distributed and provide specific instructions on how you want digital assets to be distributed.
Not only is this best practice to protect your assets of any kind and to appoint key roles like guardians for minor children, it will also likely be required in order to release any account contents (for example, Coinbase requires a copy of the will as part of its process to release funds to an estate).
As we go through this major wealth transfer between generations, it’s likely that banks, fintechs, crypto exchanges, social media platforms and other content providers will create clear death-management processes that make it easier to alert people about digital assets before you die and provide easy access instructions. But until that happens, following these steps means you can ensure your assets go to the people or organizations you want them to -- and that they won’t be stuck in digital purgatory.