Yes, You Need Digital Estate Planning. Here’s Why.

Digital Assets & Passwords

You’ve done your due diligence when it comes to shoring up your affairs: bequeathed home or property made plans for where your money should go, or even made plans for the end of life care and health directives. You have responsibly planned for what lies ahead and now you’re all set, right? 

Well, not so fast. Unless you’ve also addressed your online assets, you’re not as prepared as you may think. Consider these scenarios after your passing:

  • Who will be able to access your email accounts?
  • Will anyone be able to manage or post final messages on your social media accounts?
  • Will your digital photos, music, or other “in the cloud” items be accessible to friends or loved ones?
  • Who’s going to manage your online business or blog, if you have one, or your seller account on sites like Etsy or eBay?
  • How is digital currency, like credit card rewards or Bitcoin, to be handled?
  • Can anyone access your online financial accounts?

With just these few examples, you can see how much of our business and our lives are conducted online and, thus, just how important it is to include digital assets in your estate planning. 

Let’s take a look at what you need to know to get your online affairs in order. 

Legalities

First, it’s important to understand how digital estate planning provides legal protection for friends or loved ones that you may enlist to manage your assets. 

You may think that sharing a list of usernames and passwords is all you need to grant others access to online accounts. However, unless the recipient has a legal directive to access those accounts, he or she may not be recognized as an authorized user. 

That can lead to accusations of identity theft or hacking. 

To address this issue and provide legal protection to well-meaning third parties, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADDA) of 2015 has now been enacted in almost every state. This gives fiduciaries the right to manage digital assets as they would tangible assets.

Again, however, it’s not enough to just ask someone to fill this fiduciary role. In order to protect them as an authorized user, this fiduciary must be assigned through a will, trust, or power of attorney. 

Following legal procedures provides protection and peace of mind for both you and the person you choose to serve as your online manager. 

How Do I Get Started?

Ready to plan for those digital assets? Here’s a basic list and some helpful resources to get started.

Start a List

Think about all your online accounts and/or assets and list them. Include everything, such as: 

  • Online financial accounts, including banks, utilities, mortgages, and investment accounts
  • Email and social media accounts 
  • Passwords for accessing devices
  • Online storage accounts like iCloud or Google Drive, including storage accounts for photos, videos or music
  • Payment sites like PayPal or Venmo
  • Online business or blog information, including domain names

Don’t forget to also include information on any hardware you may use, such as computers, laptops, tablets, flash drives, smartphones, and watches, etc. View this article for a more comprehensive list of what you may want to include in your digital inventory. 

TIP: You may find it helpful to keep this information in an online account management program, such as LastPass or Keeper

Detail Your Wishes

Now that you have all your assets accounted for, you need to decide what happens to them. Take extra time and care to make these decisions, and be as detailed as possible. For example, there may be emails, photos or posts that you would not want certain individuals (or anyone!) to see. Specify those wishes down to the letter. 

Also, don’t leave any decisions, no matter how small, up for interpretation. Do you want your knit sock store on Etsy to shut down immediately, or after all the socks are sold? Do you want your sister to have access to all your photos, or just the ones from your shared family vacations? Do you want your family fighting over your credit card rewards?

The devil is truly in the details when it comes to digital assets. 

Make it Legal

The next step is choosing who is going to serve as your digital manager a.k.a. digital executor. Naming an individual for this role clearly defines who can and cannot have access to your online assets. This person can also work with your overall executor to make decisions regarding digital assets. 

This person can be a friend, family member, attorney, business manager or any other trusted individual. Most importantly, whomever you choose should be willing to manage your assets according to your wishes, and not abuse that trust. 

Finally, work with your estate planning attorney and financial advisor to put this all into writing. This will include updating wills or a codicil to a will, powers of attorney, and living trusts. If you live in a RUFADDA state, you may need to complete additional electronic forms specifically naming your online fiduciary. 

TIP: Do not include your actual online asset inventory or any usernames or passwords in your will. Your will becomes a public document upon death, allowing anyone to access this information. Instead, store this sensitive information with your attorney, in a safe, or an online storage service. Just make sure to share the location with a few trusted folks. 

Once you’ve got your plan in place, don’t forget to update it regularly to account for any changes in new laws or your own digital activity.

To Own or Not to Own?

In last month’s blog post, I talked about both the positives and negatives of business partnerships. I recommended a lot of soul searching and “know thyself” kind of questions that can guide you in making the best decision for yourself.

This month, we’re going to take a step back and ask ourselves a broader question that can help inform any entrepreneurial decisions: is it even worth it to own your own business, partner or no partner?

If you have been thus far deterred because of the oft-repeated statistic that 90% of startups fail, I’ve got good news: it’s not actually true. Even during the worst of times (the dotcom bust), the failure rate only reached 79%, a full eleven points shy of this dismal projection.

If we look at the actual numbers, you might feel a bit more encouraged:

Startup Failure Rates by Year:

  • Second year: 20%
  • Third year: 30%
  • Fourth year: 38%
  • Fifth year: 44%

Essentially, you’ve got a better than 50-50 shot of your business making it past the five-year mark – a pretty level playing field, if you ask me!  

So, now that we’ve cleared up that initial hurdle, let’s look at what is both good and bad about business ownership, and what successful business owners can learn from failed startups.

Control

Pros: If you’re considering starting a business, you probably already feel that tug of wanting more autonomy, of having the final say over everything. You want to be your own boss and answer only to yourself.

And in many respects, you will have that: you’re choosing the product, the marketing, the income, the policies, the hours, the workers, etc. You will definitely find a freedom in business ownership that you didn’t have as an employee.

Cons: However, ironically, complete control comes with limitations you may not have expected. For example, you’re probably going to have to initially do tasks you don’t enjoy and/or are not prepared to handle (ahem, accounting, IT, legal issues, admin tasks, etc).

Your workweek will almost definitely log more than 40 hours, even if you get to dictate the when and where. If you have investors or board members, you’ll have to answer to them. And if you build a product and no one comes, you’re going to have to rely on customer input, not just your own vision, to retool your business.

Finances

Pros: The sky is the limit! You get to choose your salary, there’s no limit to how much you can earn, and your own effort and hustle can directly impact all of the above. For once, you are in a position to control your financial destiny.

Cons: Pure profit is a shortsighted view of business ownership, especially during the critical first years. Much of your income will probably need to be reinvested in the business to help it grow, and your income can be highly unpredictable while trying to establish your business.

Additionally, your personal finances are no longer your own due to liability issues. Personal liability as a business owner means co-mingling of business and personal assets and you can lose it all if sued. Protect yourself by exploring ways to limit liability.

Fulfillment

Pros: Maybe you are pursuing your own business because you want to help people, contribute to society, or otherwise gain personal satisfaction. If that’s your motivation, you’ll be living the advice of “Find a job you love, and you’ll never work a day in your life.”

Many business owners have found this kind of happiness by building a product or company that allows them to feel personally fulfilled, and have reported living more quality lives because of it.

Cons: The flip side of working so hard to find your joy is that working so hard brings stress and possible health issues.

As I previously mentioned, business income is highly unpredictable and can depend largely on the entrepreneur’s ability to hustle and generate revenue. Staying on the grind generates stress; having employees that depend on you magnifies the stress by X.

Be aware of potential health risks associated with business ownership and make a proactive plan to mitigate unhealthy side effects.    

How Can Your Business Succeed?

Finally, after weighing these pros and cons, if you have decided that starting a business is right for you, it’s helpful to take a look at failed startups to see what you can and should do differently to succeed.

Here are the top five reasons businesses fail, according to CB Insights:

  1. No market need – In a nutshell, make sure that you’re offering something that someone actually wants to buy. Following your passion is ideal, but will it bring customers?
  2. Ran out of cash – Simple as that. This can be a symptom of other issues listed here, or the previously mentioned issues of unpredictable revenue streams or unwillingness to reinvest profits.
  3. Not the right team – Make sure your team brings a diversity of skills, experience, and opinions to weather the critical first years. Having a team of yes people helps no one.
  4. You were outcompeted – Don’t turn a blind eye to what the competition is doing. If they’ve built a better mouse trap, you may need to shift your focus to stay relevant.
  5. Price or cost issues – Make sure you are choosing the prices and price structure that make the most sense for your customers and product industry.

As you can see, so much about business success is dependent on making wise financial choices, which can be difficult to do when you’re juggling all the responsibilities of getting your business off the ground.

You don’t have to go it alone! A certified financial planner can help you navigate these decisions and give your business the best chance at success by starting on a solid financial foundation and creating a financial roadmap for where you want your business to go.

Are Two Heads Always Better Than One?

If you’ve ever had a roommate and/or been married, you know how hard it can be for two people to work together for what is (hopefully) a mutually beneficial goal. Whether it’s to save money on rent, or simply because you love and want to build a life with someone, we enter into these interpersonal arrangements with the best of intentions to compromise with and respect our partner to achieve the best possible outcome.

Yet, based on the estimated 50% divorce rate in America, those intentions clearly don’t always pan out.

Why, then, do we think that a business partnership would be any different?

When you think about it, business partnerships take the same level of commitment and compromise to work as marriage or living together. And yet almost 70% of them face a similar fate of failure. I believe that this ultimate failure – like any relationship – can be due in large part to not asking the right questions.

So aside from analyzing the common pros and cons of forming a partnership, I recommend also asking yourself a series of questions that will help you determine what both you AND your potential partner can do to address hot button topics upfront and set realistic expectations for a balanced relationship.

First, let’s take a look at the essential pros and cons of a business partnership.

PROS

  • Your partner has skills, knowledge, connections or other beneficial offerings that you do not.
  • You don’t have to go it alone. Having someone to weather the storm of starting a new business can provide confidence and camaraderie.
  • The workload is divided, thus it’s easier to accomplish more.
  • Creativity or innovation can be sparked by having another perspective / sounding board.

CONS

  • Joint decision-making can be long and tedious, it will lead to disagreements and possible resentment, and it can ruin relationships.
  • You have to share profits or stock, and this can get ugly when you have to jointly decide how to spend or reinvest to grow the business.
  • Work ethic and responsibility are subjective. Again, a recipe for resentment.
  • You may be liable for your partner’s actions or activities.

Now, here are the questions you can ask to determine whether a partnership is right for you.


1. Are you a team player?

There’s nothing wrong in admitting you prefer to work alone. In fact, it’s very common for entrepreneurs to have lone-wolf tendencies.

However, overlooking this self-evaluation will lead to major problems down the road, when you resent not being able to make decisions on your own. If both you and your partner lack the ability to be a team player, your power struggle will undermine and eventually destroy any goodwill you may have.

Be honest about where you fall on the self-sufficiency scale and ask your potential partner to do the same.

Also, don’t forget to consider the most obvious question: do you even need a partner? Unless you have to bring someone on board for financial capital or for the skills they possess that are not easily acquirable, chances are you can do this on your own.


2. Can you accept differences among skills and roles?

Ideally, the division of labor will be divvied up into ways that play up your unique skillsets. For instance, one of you may handle clients, while the other handles the books. This division is one of the reasons people choose partnerships: to each bring your complementary skills together in a yin yang balancing act.

But what happens when that division leaves one partner feeling like they are working harder or more hours? Or not getting their due recognition? Or more passionate then the other? Or any other myriad way that feelings of inequality can rear their ugly head?  

What once seemed like a complementary style may now seem like a partner with differing levels of passion, drive, or working hours than you.

Can you recognize contributions that may look different on the surface, but bring equal value to the table? Or what will you do if there is genuinely an uneven distribution of work?


3. Do you have similar values and have you set clear expectations?

Choosing a partner should be like a job interview: you should be looking for the “best fit” candidate that shares your values and vision for the business. This may seem like a no-brainer, but it’s easy to get caught up in the excitement having a great idea or great chemistry together and forgetting to perform this exercise in due diligence (ask anyone who’s ever started a friend or family partnership – and failed).

Having this pointed and deliberate conversation can help identify the right partner and set clear expectations from the outset.

Ask your potential partner interview-like questions to help guide both of you toward a more grounded, realistic approach to how your business will run:

  • How do you handle adversity?
  • Where do you see yourself in five years? In ten?
  • How comfortable are you with risk?
  • Tell me about how you motivate yourself.
  • Can I contact your previous business associates?

Bottom Line

Business partnerships, just like any other partnership, rely on carefully selecting the right partner that will bring balance and value to the table…and then is continuously committed to working hard every day to meet shared visions and expectations.

Choosing to form a partnership may not be the best decision for everyone or for every situation, but it can be very beneficial if entered into for the right reasons and with a realistic understanding of both the positive gains and negative drawbacks.

If you decide to go down this path, it will be essential to build an operating agreement. Legal and financial professionals can help to set up protections for all parties involved, through good times and bad. Again, just like any relationship, the goal should be for all partners to do well and, if and when it’s time to part ways, for an amicable split that ends with dignity and respect.