Why Most Estate Plans Fail at Digital Asset Planning

Ever heard the story of the guy who lost hundreds of millions in Bitcoin because he forgot his password? That’s not a myth. It happened to Stefan Thomas - he had 7,002 Bitcoins locked on a flash drive with only two chances left before they’d be gone forever.

These days, more people than ever hold digital assets: crypto, online accounts, NFTs, photos, even domain names. But if your family can’t access them after you’re gone, it’s like they don’t exist.

And here’s the kicker: most estate plans ignore them completely.

In this post, I’ll show you how to prepare your digital estate plan the right way - so your crypto, your online identity, and everything else you’ve built doesn’t get lost, locked, or left behind.

Why Digital Assets Matter in Estate Planning

Let’s start with why this is even a big deal. Most of us own more digital assets than we think. But according to a 2024 Bryn Mawr Trust survey, while 79% of Americans say protecting these assets is important only 29% feel like they truly understand how to do it.

Even more shocking? Among those who work with a financial advisor, only 44% say their advisor has ever discussed digital assets or digital estate planning with them. And among high-net-worth individuals the planning gaps are still just as wide.

So what happens if we don’t plan?

Digital accounts can vanish. Crypto wallets can become inaccessible. Your loved ones could be locked out of your online life entirely - unable to recover funds, photos, or even critical financial information.

And unlike traditional assets, where a court can step in, digital assets often require something more: knowledge, access, and permissions.

No password? No access.

No two-factor authentication (2FA) key? You're stuck.

No seed phrase? That Bitcoin might as well be floating in outer space.

What Are Digital Assets?

So let’s get clear: what exactly are digital assets?

A digital asset is anything you own that lives online or in a digital format. They include everything from cryptocurrency, NFTs, online bank accounts, and investment platforms to photos, cloud storage, email, loyalty points, blogs, and even social media profiles.

They also include encrypted files, domain names, password vaults, and yes, even your digital identity.

But here’s what sets them apart: they don’t come with a title or a deed. You don’t get a certified share certificate or a notarized ownership paper. These assets live in data, are protected by layers of encryption, and often disappear the moment the owner does - unless proper steps are taken in advance.

And there are legal issues too. Many states now follow something called RUFADAA - the Revised Uniform Fiduciary Access to Digital Assets Act. It outlines three tiers of access for digital assets:

Tier 1 – If the platform offers a planning tool, like Google’s Inactive Account Manager, your choice there overrides everything else.

Tier 2 – If no tool exists, your will or trust takes precedence but only if it clearly addresses digital assets.

Tier 3 – If neither exists? Then the terms of service apply and those often say “no access” for anyone but the original user.

That means your loved ones might not be able to recover your emails, your Bitcoin, or your photo library even with a court order.

Let’s imagine a worst-case scenario.

You pass away or become incapacitated. You’ve got accounts, passwords, crypto, digital keys, maybe even content that generates income.

Now the question is: Who knows where it is? Who has access? Can your spouse or kids retrieve it? Or are they locked out?

This isn’t hypothetical. It happens all the time, especially with cryptocurrency.

There’s no “forgot password” link for a cold wallet.

No tech support for a lost seed phrase.

No way to bypass two-factor authentication if you didn’t leave instructions.

And if no one even knows what you had, your family may not even know there’s something to recover.

Let’s talk about taxes for a second. The IRS doesn’t treat crypto like cash, it treats it like property. That means every time you sell, spend, or even just swap Bitcoin for Solana, you are creating a taxable event.

And here’s where it gets even trickier. If someone receives digital assets as compensation for services, say they got paid in Bitcoin for a freelance gig, it’s taxed as ordinary income based on its value at the time received. Now combine that with the fact that most crypto platforms do a poor job tracking your cost basis, transaction history, or holding periods. So when heirs inherit these wallets - often with no context, no records, and no way to trace back the original transactions - it’s a recipe for confusion and tax trouble. And the IRS isn’t going to accept “we didn’t know” as an excuse.

Worse still, most crypto exchanges don’t allow you to name a beneficiary. So even if your family knows the account exists, they may have no legal access.

Without a digital estate plan, your assets don’t just risk being taxed the wrong way - they might disappear completely.

Not legally. Not practically. Not at all.

The Crypto That Vanished

Now, let me tell you the full story of Stefan Thomas - the guy I mentioned earlier who lost hundreds of millions in Bitcoin. It’s a perfect example of why this matters so much.

He was a software developer from San Francisco, owned 7,002 Bitcoins, worth over $200 million at the time. He stored them on a small, encrypted flash drive called an IronKey. But there was one problem: he forgot the password.

The IronKey gives users only 10 attempts to unlock it. After that, it permanently encrypts the contents. Stefan used 8 tries. Just 2 chances left before those Bitcoins are lost forever.

Now imagine how that feels. Knowing your wealth is right there... but completely inaccessible.

There’s no customer support for blockchain. No password reset link. No attorney who can write a letter and get you access.

This isn’t just about losing a digital file. It’s about losing generational wealth because of one missing piece of information.

And here’s what makes it even more heartbreaking: Stefan had no backup, no recovery option, and no way for anyone else to help. It all came down to a single forgotten password.

And that’s exactly why digital estate planning matters.

How To Create Your Digital Estate Plan

Now how do you protect your digital assets and make sure that doesn’t happen to you?

Here’s a practical, step-by-step approach:

Step 1: Take Inventory

Start by listing everything. And I mean everything - crypto wallets, passwords, social media accounts, cloud drives, NFTs, subscription services, even your blog or YouTube channel if it earns money.

Think about:

• What it is

• Where it lives

• How it’s accessed

• Whether it has any monetary or sentimental value

You’d be amazed at how much you have once it’s all in one place.

Step 2: Store Your Credentials Securely

Use encrypted password managers like 1Password, LastPass, or Bitwarden.

For crypto, consider using tools like Casa for secure, multi-signature storage that’s built for estate transfer.

Whatever you do:

• Never store your seed phrase with your wallet.

• Never keep it in plain text on your phone or computer.

• Never rely on memory alone.
  

Keep things accessible, but protected. Think fireproof safe + encrypted backup + clear instructions.

Step 3: Update Your Legal Documents

This is where many plans fall apart.

Wills, powers of attorney, and trusts must explicitly authorize access to digital assets. Without that language, your fiduciary may be locked out or break privacy laws by trying to help.

Be specific:

• Do you want full access granted?

• Do you want certain assets to go to specific people?

• Do you want others kept private?

A blanket authorization might feel easier, but sometimes it’s not appropriate. A good estate planning attorney will help tailor this to your comfort level.

And if you’ve already created your documents but haven’t updated them in a while, now’s a good time to go back and check.

Step 4: Communicate the Plan

Even the best planning fails if nobody knows it exists.

Let your executor or trusted loved one know:

• Where your inventory is stored

• How they’ll get access it (safe, vault, or attorney)

• What steps to take if something happens to you

You don’t need to give them passwords today but you do need to create a roadmap.

Because a locked vault with no key? That’s just a fancy paperweight.

Final Thoughts

Here’s the truth: most estate plans are still stuck in the 20th century.

They cover bank accounts, your house, your IRA but they leave out your online life.

And more and more of your wealth - and your identity - exists in digital form.

Whether that’s crypto, documents, family photos, or income-producing content, it deserves just as much protection as your physical assets.

A proper digital estate plan makes sure your loved ones:

• Can access what they need

• Avoid unnecessary legal or tax trouble

• And preserve what you built - not lose it to oversight, encryption, or red tape.

If you already have an estate plan but haven’t addressed your digital assets, now’s the time.

We help clients ensure that all their assets, not just the physical and financial, but the digital too, are secure, accessible, and built into their legacy strategy.

If you want personalized help reviewing your documents and making sure nothing’s missed, schedule a free Estate Clarity meeting.