Protecting your digital assets

  • Posted: Monday, August 6, 2012 12:46 p.m.

Many married individuals, most notably husbands, do their spouses a terrible disservice by not engaging those spouses in the family’s finances. The inevitable result at death of the non-involver is financial chaos for the surviving spouse. My dear departed father was of that ilk, but thankfully my mother had enough financial savvy to pick up the pieces and carry on with her life when my dad passed away. Now, the problem has been compounded tenfold.

According to the Pew Internet & American Life Project, 36 percent of Americans over age 45 have become online bankers and, thus pay their bills online via their personal computers. But worse, untold millions more of us store our financial records online behind a plethora of user names and passwords, and getting at that information in the event of an untimely death can be very difficult without access to those web addresses, user names and passwords. To compound the problem, only a handful of states have enacted legislation that deals with digital property management after death, and estate planners as a group have not formulated standards for the proper disposition of those client assets that are based in cyberspace.

Digital assets come in many flavors, from online stock brokerage and bank accounts to web-based businesses, web pages and blogs. In the absence of log-in information, a deceased person’s family may be forced to hire a forensic computer expert or obtain a court order to access those online accounts. So, what steps should one take now? It makes good sense to prepare an inventory of all of one’s online accounts and to store that information on a flash drive, including user names, passwords and security questions. The flash drive should then be stored in your safe deposit box or in a safe and updated as often as changes are made. In addition, there are reputable websites such as legacylocker.com and assetlock.net that allow clients to release account information to their designated beneficiaries after the death of the individual. Thanks to smartmoney.com for this tip.

On the retirement front, the conventional wisdom for handling one’s 401(k) plan assets after leaving a company is to roll over all of those assets into an IRA, and thus preserve the tax deferral on those monies until you begin distributions from the IRA, which in the case of a traditional IRA, can be as late as age 70 ½. But what if you need some of the money now? If you rollover all of the money to an IRA and then elect to take a withdrawal, you will not only pay the tax due, but you will also get hit with a 10 percent penalty on the amount of the distribution if you are younger than 59 ½. However, if you are 55 or older when you terminate your employment, there is an exception that allows you to take part of your accumulated assets in cash, pay taxes on that withdrawal, but not be hit with a 10 percent penalty. You may then rollover the balance within 60 days to an IRA of your choosing without any tax liability on the rollover amount.

According to MSN Money, today’s historically low interest rates do have a silver lining that persons with good credit scores can take advantage of. First, if you need a new car, now may be time to get rid of your current vehicle and purchase a new one outright or trade in your old vehicle. I recommend using your home equity line for that purchase since the interest is deductible, but if those monies are not available, interest rates on car loans are under 5 percent for good credit risks. Then, too, you may want to consider purchasing a home if you have not yet done so or even consider rental property for purchase. If you are handy and are equipped to handle the required maintenance on an investment property, it may make sense to take the plunge now and benefit from low mortgage rates on such property.

Got a financial planning question for Greg? You may e-mail him at greg@lifesolutionsonline.net.

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