Article by Vanessa Schrum, Anthony Fittizzi and Kerry Harris

While wealth management takes on many forms, too few of us are currently giving adequate thought to the value that our digital assets hold. From social media profiles to online banking and digital photos, nearly all of us have a digital footprint today, and that footprint can have a profound effect on our personal, professional and financial lives.

Digital assets have value beyond their monetary worth and increasingly high net worth individuals need a plan to protect them, and to prepare for and mitigate any emerging risks, particularly those that might impact the next generation.

Digital assets comprise anything stored in binary format, whether on a server, computer or other electronic device, that come with a right of use. As such, an individual's digital footprint may include their social media and online presence, including their own websites and others where photos and documents are stored; online accounts, including bank accounts and shopping sites; personal photos, videos and emails stored on a device; and other things like virtual property or money in online games or loyalty programmes.

A McAfee survey conducted in 2013 revealed the average global internet user has more than USD35,000 in under protected digital assets.

"All of these things are out there," says Anthony Fittizzi, a wealth strategist at US Trust in New York. "Some hold monetary value, some hold sentimental value, and others just hold value to your heirs.

But when you are talking about protecting these assets, this is relatively new territory."

Fittizzi advises wealthy individuals to take four steps to protect themselves, starting by making a personal digital inventory that lists everything out there that is of value. "This can be very difficult," says Fittizzi, "but having a full inventory available allows an individual to better manage the assets in life and provide guidance to whoever might take over control of the digital property at some point in the future." That inventory includes a list of passwords and usernames, and needs to be kept in physical format somewhere safe.

The next step is to ensure that all of that information is properly stored and, to the extent that it can be, is encrypted and has the appropriate security in place. Then those assets need to be regularly backed up and the digital inventory needs to be regularly updated.

Finally, Fittizzi says individuals should update their will and power of attorney to make sure that digital assets are distributed the way that they want them to be, and that the right people have access to the necessary information.

Secure storage of passwords

Vanessa Schrum, a partner in the Private Client and Trusts team at Appleby in Bermuda, often handles issues around digital assets for high net worth individuals. She says that digital assets can be placed in a trust to be managed by competent trustees during a client's lifetime, or passed to beneficiaries under a will following death. "However," she says, "as a will becomes a public document once probated, it is generally advisable not to list sensitive assets or include passwords and other private information in a will. Instead this information should be listed in a separate confidential document which should be stored in a secure place. If it is stored with your will, in a lawyer's safe for example, it will be available to your executors on your death."

Alternatively, passwords and other confidential details can be stored on a flash drive, in the cloud, or using a digital online afterlife management company, or online password vault.

Failing to take these steps can lead to lost passwords and information following death or incapacity, identity theft, or a risk of financial losses to the estate.

Fittizzi says: "The vast majority of folks that we deal with haven't taken steps in planning in this area, they may lack a full understanding of all the assets that they have – an inventory doesn't exist and they haven't appropriately updated their wills and powers of attorney. This area of planning is still evolving and a significant number of folks just haven't addressed it yet. But as the younger generation comes up through the ranks and the average person's digital footprint is growing larger, we see this becoming more and more of an issue going forward."

This is also an area where the law is moving fast to keep up with technological developments. In the last decade, many states in the US have introduced express legislation to allow executors, on production of a death certificate, full access to digital assets on death, despite privacy and non-transferability provisions on the sites in question.

Schrum says: "Estate planning for digital assets is just as important as planning for other assets and similar considerations will apply. Understand what you have, where it exists and how to access it. Ensure that someone else has access and control of these assets following your death or incapacity, and leave adequate instructions on what is to happen to these assets following your death."

She adds: "Many people now consider a separate will – perhaps a social media will – to cover certain digital assets, but often times a properly drafted will, usually containing an express clause concerning digital assets, or enabling provisions, will be sufficient."

Forgotten footprints

Kerry Harris is founder and principal at ReBoot Consulting, a Canada-based international brand strategy consulting firm. She says that one of the biggest problems with digital assets is that we all have a habit of moving on and forgetting about footprints we have left behind. Harris says: "As an individual grows up they go through different stages of digital assets, but a lot of the time they don't close them off. Someone might have been big on Snapchat in their twenties, but into something entirely different in their thirties."

As such, she advises high net worth families that have digital asset management systems within their family holding companies to create ancillary systems to manage their personal assets, to hold those together.

"The first message is consider that your digital assets have value," she says. "The second is, like everything else you have – your insurance policies and bank accounts - keep details and keep them up to date. You have to be really aware of what you have."

That's a message every single one of us should keep in mind.

Originally published in Wealth Structuring 20:20, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.