Protecting Your Digital Assets Through Estate Planning

Digital assets have grown in popularity in recent years to become a widely accepted form of investment, which means that those who own crypto and other assets must account for these changes in their estate planning. Digital assets like cryptocurrency may make up a large portion of an individual’s investments and wealth, and mismanagement of these assets could damage the value of an estate. Digital assets are known to be volatile when it comes to management and retention of value, which means that improper handling of these assets could damage their value. 

This is why estate planning is so vital for those with significant crypto assets. Leaving clear instructions and implementing a plan for those who will manage these assets after you are gone can help preserve their value and leave a lasting digital legacy. However, protecting digital assets can be done in many ways. Various methods of estate planning have different benefits and challenges, so it is important to understand all the available options before pursuing a plan. A skilled estate planning attorney from the Law Office of Troy M. Moore, PLLC can evaluate your situation and help develop an effective plan to protect digital assets. 

What Are Digital Assets?

According to the Internal Revenue Service (IRS), a digital asset is property that is stored electronically and can be bought, sold, transferred, owned, and traded. This includes cryptocurrencies like Bitcoin, Stablecoin, and Ethereum, as well as other digital assets like non-fungible tokens (NFTs) and more. Those building an estate plan would do well to note that the IRS classifies digital assets as property, not as liquid currency. This means digital assets may be taxed differently from normal currency. Some digital business assets, such as online stores or profitable social media accounts, may be included in these categories, though there are typically more nuances than standard cryptocurrency. 

What is Considered a Digital Asset?

While the obvious examples of digital assets include cryptocurrencies and NFTs, there is much more to this issue than meets the eye. An individual may have many different virtual assets that they own that may not be immediately obvious. For example, email accounts, social media accounts, domain names, and more may all be considered digital assets. Additionally, digital files such as photos, videos, and creative projects like manuscripts, visual art, or music. Even typically accepted digital property may have multiple classifications, according to the International Capital Market Association. While the financial value of these other digital assets may vary by individual, including them in estate planning can help protect and distribute these assets according to the testator’s desires. 

Estate Planning Strategies for Digital Assets

When building an estate plan, it is vital to understand the impact of digital assets. Estate planning is already a complex field of law, and failing to address this new and growing facet could lead to greater challenges further down the road. However, accurately addressing the complexities of this type of asset can help protect wealth and preserve the value of an estate. Protecting assets with effective strategies like wills, trusts, and more can provide peace of mind for the future.

An experienced Texas estate planning lawyer from the Law Office of Troy M. Moore, PLLC can help you develop strategies for protecting your digital assets.

Manage Access Restrictions

Most valuable things on the internet are password-protected, including online accounts, cryptocurrency, online services, and more. Since estate planning is primarily focused on providing a smooth transition for assets and other belongings, individuals with valuable digital assets should consider how to grant access to passwords and authentication for these online assets. This will help the executor of the estate gain access to these assets so they can be managed during the process of distributing the estate. 

Incorporate Digital Assets into Wills and Trusts

Wills and trusts are the most commonly used methods of estate planning in Texas. Wills are a straightforward way to help designate beneficiaries, distribute assets after death, and leave instructions for the care of minor children. Trusts are slightly more complex, but they provide much greater tax benefits and help assets avoid probate, which can be costly due to creditor claims and estate taxes. However, both of these tools provide options for the protection of digital assets. A testator can leave instructions for the management of digital assets in a will, and a grantor can have their assets managed by a trustee in a trust. Storing digital assets in a trust may provide the additional benefits of skilled management before death, protection against creditors, and avoiding probate. 

Establish a Digital Executor

Another step that individuals can take to protect their valuable online property is by establishing a digital executor. In a standard estate administration, an executor is an individual appointed by the decedent or the courts who will manage the administration of the estate and ensure that all assets and bequests are accounted for while managing the distribution process. However, a digital executor can help by managing accounts, accessing files and important information, and much more. Texas law does not officially recognize the position, generally defaulting to the legacy settings of the account itself, but nominating one in a will can help smooth the process of distribution and provide clarity to those executing the estate, according to the State Bar of Texas. 

Build an Effective Estate Plan for Digital Assets

Effective estate planning goes beyond just wills and trusts. There are many options for those seeking to protect their digital assets, each with unique benefits and drawbacks. In many cases, a combination of multiple tools can provide the most benefit, while for others, a simple approach is better. Building a strong estate plan begins with understanding the assets and the person in question, and constructing a supportive network that can help carry out the individual’s wishes. When it comes to digital assets, a skilled estate planning attorney can help evaluate needs and benefits to tailor an estate plan to the individual. Protecting digital assets begins with understanding and ends with clear communication and planning. 

A Houston, Texas Estate Planning Attorney Can Help

Digital property, like cryptocurrency and others, can be an effective way to grow wealth and leave an impactful inheritance to those who come after. However, taxes, legal challenges, and the volatility of these investments can ruin the good intentions and diminish the value of an estate without proper planning. Accounting for these complications and preparing for different possibilities can help strengthen an estate plan and provide a strong foundation to preserve wealth. Speak with a seasoned Houston, Texas estate lawyer from the Law Office of Troy M. Moore today to learn more about your estate planning options. Call now at (281) 970-8039 for details.