Don't Take Your Passwords to the Grave

Neglecting to share details of online accounts will cost your heirs time, money

If you're smart about your online life, you've created strong and varied passwords for all your accounts. You change those passwords often. And you never write them down or share them with anyone.

That's all well and good while you're alive. But your admirable devotion to protecting sensitive personal data can wreak havoc for your heirs after you die.

With an increasing portion of our personal lives stored online in password-restricted accounts -- including bank accounts, automatic bill-pay arrangements, personal messages and even items with small monetary but major sentimental value, such as photos -- piecing together an estate after a death can cause major headaches.

For example, if you have an online savings account separate from your regular bank account and the statement notifications are only emailed, not mailed, that account may get overlooked when your finances are disbursed to beneficiaries.

"We spend hours or days trying to track down the information," said Hyman Darling, an attorney with Bacon Wilson in Springfield, Mass., and chairman of that firm's estate-planning department. "Very often things don't come in the mail and we wouldn't know about [the account] for some time."

Don't Forget to Share Passwords

Of course, creating a will detailing your assets can help, but a will doesn't solve everything. "Even when people remember to leave a list of financial accounts with their other important papers for the next of kin, they often forget account passwords," said Michael Palermo, a Lexington, Ky., attorney who specializes in estate planning.

Without log-in information, survivors usually need to go to court for legal authority to gain account access. The process varies from state to state; it doesn't always require a lawyer but it always takes time, Palermo said. Then, the surviving heir must get the company that runs the online account to heed her authority -- a task that's not always easy, Palermo said.

"Try contacting customer service and telling them, 'I've been appointed as my late brother's administrator. Please give me his user ID and password,' " he said. "Eventually, of course, this type of problem is solved when you can reach a real human being who doesn't act like this is the first customer ever to die. But these people have to be sought out within any institution I've ever dealt with."

The process can be even more complicated if someone is incapacitated rather than dies. "If there's no power of attorney, then we have to have a guardian or conservator appointed to have access to these records," Darling said. "Some companies won't give us information even if we have that, without a specific court order."

The costs of gathering the information can add up, Darling said. "It's unfortunate when they could just have put [the passwords] on a piece of paper or given it to someone they trusted."

The problem isn't limited to financial accounts -- heirs may want to save items with personal meaning, including messages in an online email account or photos stored on a site such as Kodak Gallery or Shutterfly.

Or, if you participate in a social-networking site such as Facebook or Twitter, you may want to exert some control over what happens to your profile after you die, but unless you leave your user name and password with a trusted person, it'll be tough for them to gain access.

What happens to your Facebook page if no one has that log-in information? A Facebook spokeswoman said via email that "if a family member alerts us that a loved one has died, we will place the profile in Memorial State, or take the profile down, based on their wishes." In memorial status, certain profile sections "are hidden from view to protect the privacy of the departed." She added: "We will not give access to the person's account."

While some people might be happy their relatives can't get access to their email or other accounts, others are taking matters into their own hands. "I had a young man in his 20s in here a couple of months ago to sign off on his will and he had some specific instructions about Facebook," said Patricia H. Char, a Seattle attorney with K&L Gates. "These are issues for this generation."

Plan Ahead, but Protect Data

This all raises the question: How do you protect your sensitive data while you're alive while at the same time ensuring your heirs have access to the necessary account information once you're gone? It's not as though handing out your passwords is always a good idea.

One solution is to give a lawyer or trusted relative all the information. Another idea: Divvy up different accounts to different people. Or, store the information in a safety-deposit box or home safe -- just make sure someone can gain access to the box or safe.

There are companies that aim to help you sort through these issues. Legacy Locker (legacylocker.com), for instance, lets you store log-in and password information for your online accounts and make arrangements for sending it to the appropriate people upon your death. It also lets you write and store letters to send to relatives.

Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco.