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When Your Online Passwords Become Your Heirs' Problem

"Sorry, the username or password you entered is incorrect."

Few people want to sift through paperwork when a loved one dies, but now many also have to plunder through online accounts—stock trades, bank statements, social networks and emails—to retrieve crucial information and possibly a portion of their inheritance.

To complicate matters, most people wisely change their passwords frequently and rarely use something obvious. Meanwhile, most estimates show that the average Internet user has as many as 20 passwords. It's a wonder we're able to keep track of our ever-growing library of passwords. So how do we expect loved ones to know them if something unexpected happens to us?

While numerous services can safely secure your passwords in an "online vault," they can be limited. In many instances, some online terms of service—at Yahoo or Google—may prevent you from transferring accounts to other people. There is also the consideration: What if the online security company goes out of business? Storing your passwords in your will isn't a good idea since passwords can change often and a will becomes public record, which can potentially put your assets at risk.

4 Steps to Organizing Your Digital Estate
Lynn M. Gaumer, the senior technical consultant at The Stelter Company and an estate planning attorney with more than 10 years experience in private practice, recommends that you take proactive steps to ensure the desired distribution of your digital assets.

"Draft a separate document that includes your online accounts, passwords, security questions and answers," Gaumer says. "The document should be printed or stored on a computer—that is not password protected—or USB flash drive."

Gaumer recommends sharing this document with a loved one. The same document should also be placed in a sealed envelope and given to your estate planning attorney so it can be referenced in your estate planning documents and given to your executor upon your death.

To get your digital estate in order, Gaumer recommends these four steps:
  1. Identify all of your online assets—email, Facebook, PayPal, bank accounts, etc.
  2. List the usernames, passwords, security questions and answers, along with the accounts on a computer spreadsheet that can be easily updated. The list should either be stored on a USB flash drive, CD or printed and placed in a safe location such as a fireproof safe or safe-deposit box.
  3. Share the location of your list with a trusted person, such as your spouse or a loyal friend.
  4. Meet with an estate planning attorney to create a plan that will allow for an easy transfer of your digital estate to your heirs.
Where Do I Go for Help?
Because the laws vary from state to state, consult an estate planning attorney for more information.

Copyright © The Stelter Company, All rights reserved.

The information on this website is not intended as legal or tax advice. For legal or tax advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.