How to Ensure Your Digital Assets Are Protected for Your Loved Ones

From cryptocurrency wallets to treasured family photos stored in the cloud, digital assets are becoming a significant part of our lives and, importantly, our estates. Yet they are frequently overlooked in estate planning, which can mean they do not pass in accordance with your wishes. In this article, we explain what digital assets are, how they pass on death, and the practical steps you can take to protect them.

What Are Digital Assets?

A digital asset is an asset that exists as a digital record, and which may carry property rights. The legal classification of digital assets as property under English and Welsh law is still evolving, but the practical importance of planning for them is already clear.

Common examples include cryptocurrency holdings, social media profiles, digital photographs, and email accounts. Some are highly valuable and may be passed on for financial purposes, while others hold deep sentimental worth. What sets purely digital assets apart from, say, a regular bank account is that they lack the established bereavement and probate processes that make traditional estate administration straightforward. A PayPal account or a Bitcoin wallet exists primarily in the digital world, and without proper planning, can be much harder for executors to access after a death.

How Are Digital Assets Passed on After Death?

To the extent they are recognised as property, digital assets can be included in a will just like any physical asset. Where they have monetary value, they can be passed to beneficiaries as they are or sold and the proceeds distributed as cash. Even where an asset is purely sentimental, such as a collection of digital photographs, executors can copy and distribute it in accordance with your wishes.

The practical challenge, however, is access. Every digital asset has hardware, accounts, and credentials needed to reach it. If your executors do not know about these, the asset may become permanently inaccessible, your estate will not be administered correctly, and HMRC may still treat the asset as part of your estate for tax purposes regardless.

How Can I Ensure That My Digital Assets Pass on Death?

The single most important step is to ensure your executors know what you hold and how to access it. Beyond that, there are specific steps you can take depending on the type of asset.

General Steps

• Create a digital asset register. List every important digital account and asset you hold, from email and social media accounts to cryptocurrency exchanges and cold wallets. Include details of how each is accessed and, where relevant, its approximate value. Keep this register in a secure location and update it regularly.

• Store passwords securely (but not in your will). Wills become public documents upon the grant of probate, so anyone can read your credentials. Instead, store passwords in a sealed letter held by your solicitor, a dedicated digital vault, or a password manager that allows you to nominate emergency contacts. Reference this arrangement in a letter of wishes accompanying your will.

• Tell your executors where to look. Even a comprehensive register is of little use if nobody knows it exists. Make sure your executors or solicitors know that you hold digital assets and where the register can be found.

• Review platform terms of service. Some platforms restrict the transfer of accounts on death or impose specific procedures for bereavement requests. Knowing these in advance can save your executors significant time and difficulty.

For Cryptocurrency and Monetary Assets

• Record your digital ‘pathways’. Let your executors know the types of accounts you hold, whether exchange-based wallets, software wallets, or cold storage devices, and how you usually access them, including any two-factor authentication methods.

• Safeguard cold wallets and seed phrases. Ensure any hardware wallets are clearly labelled and stored in a known, secure location. Store a physical copy of the seed phrase separately from the device itself, for example in a safe or with your solicitor.

• Tokens received via airdrops may not be held on a main exchange, so ensure that these are traceable.

• Settle any outstanding tax liabilities, ensuring that any capital gains tax or income tax due on disposals made during your lifetime is paid before your death. Note that simply holding crypto at the date of death is not a disposal for CGT purposes, and it is only payable on disposals such as sales, gifts, or exchanges.

For Non-Monetary and Sentimental Assets

• Specify recipients. Use your will or a letter of wishes to set out clearly who you intend your sentimental digital assets (such as photographs, personal documents, or creative works) to pass to.

• Remember that digital items can be duplicated. Unlike a physical heirloom, a digital photo collection can be copied and given to every member of the family.

For Social Media

• If you are an influencer or content creator, consider how your accounts will operate on death. Endorsements and royalties can be paid for months or years after death, and you should consider how this should be handled as part of your estate.

• For personal social media accounts, consider whether you would like them to be memorialised, deleted, or managed by a trusted person. Many platforms (such as Facebook, Instagram, and Google) now offer legacy contact or memorialisation settings that you can configure during your lifetime. Taking a few minutes to do so can spare your family difficult decisions later.

What About Tax?

Digital assets (particularly cryptocurrency) can give rise to income, capital gains, and inheritance tax liabilities.

Income tax may be payable where crypto is received as earnings, for example through mining, staking, or employment. CGT arises on disposals such as sales, gifts, or exchanges, and it is possible for the same asset to attract both income tax on receipt and CGT on a later disposal. Executors have a duty to investigate crypto transactions, and any unpaid tax will pass to the estate.

For inheritance tax purposes, crypto assets are valued at the date of death, and monetised social media accounts or blogs may also carry a commercial value if they generate income. Crucially, even inaccessible assets may still count towards the inheritance tax threshold. As such proper record-keeping is essential to ensure that your loved ones receive what you intend to pass on.

How We Can Help

Whether you hold cryptocurrency, run a monetised social media account, or simply want to ensure your digital photographs reach your family, our team can help you put the right arrangements in place. If you need advice on including digital assets to your will contact Farleys today on 0333 305 9417, complete our online contact form or use the online chat below.