A true story, report­ed by Reuters on February 17, 2012: Karin Prangley, a 33-year-old Chicago estate planning attorney, attempted to guess her fa­ther-in-law’s password to gain access to his business computer after he suffered a debili­tating stroke several years ago at age 62. None of them worked.

“At the time, he owned a building sup­ply company, and he ran most of the business through his e-mail account,” Prangley says. “But he hadn’t left his password with anyone, so the family had no way of accessing the contents. We didn’t know which orders had been filled, what was coming in, who the business owed money to, or who to bill.”

Ms. Prangley contacted the e-mail service provider for her father’s account and explained the situation. Citing privacy concerns, the com­pany said they would require a court order to release her father’s password. “As an attorney, I knew that takes at least a month,” Prangley says. “The business couldn’t wait that long.”

Unable to access the company’s financial information, the family eventually decided to close the business.

This incident illustrates one of the emerg­ing issues in the brave new world of “digital estate planning.” As more of our financial and personal lives are archived online, the chal­lenge of both protecting and providing access increases. If your family, loved ones, business associates and financial advisors can’t retrieve it, your digital cloud of data—financial records, photos, music collections, family documents— may vaporize. As a security programmer said, “One of the most critical last words you could say might just be your password.”

Preparing for a Digital Afterlife

Digital storage has many advantages. The format is paperless, accessible at any time from a multitude of devices, and very hard to mis­place or destroy. But in order for digital storage to be secure, it requires passwords. Yet docu­menting a password—on a piece of paper, in another computer file—compromises its secu­rity. So how do you maintain security, yet allow appropriate parties access in the event you are incapacitated or deceased? The answers run the gamut from old-fashioned low-tech proce­dures to sophisticated online services.

Doc in a Box. A simple solution is listing passwords on a paper document, then secur­ing the document in a vault, safe, or bank de­posit box. Depending on the terms of use for particular online storage sites, it may be help­ful to also include a notarized letter of author­ization. While this arrangement almost assures the document will be found in the event of a calamity, and is reasonably safe from prying eyes, other aspects can be problematic. Add­ing or subtracting accounts and updating passwords require regular amendments, how­ever, many people struggle with document maintenance.

The Master Password. James Lamm, a Min­nesota attorney specializing in digital estate plans, recommends this modification to hav­ing a password list: Prepare a written docu­ment containing a single master password, and store it in a secure location. This master password can be used to open a digital proper­ty list stored on a computer or other electronic device, which provides instructions for all oth­er online accounts. This eliminates the need for constantly updating a physical document, and also adds a layer of security, because access re­quires both the paper document and the elec­tronic device.

Electronic “Vault.” Some digital finan­cial organization systems include a per­son’s important financial information and accounts, and also may offer electronic storage options for passwords, and copies of important documents and photos.

Internet Security Services. These servic­es are still in their infancy, so changes are likely as the businesses mature. But in a va­riety of ways, these online services make it possible for an individual to pre-author­ize the transfer of passwords and other dig­ital access privileges to designated parties upon proof that a death or disability has oc­curred. Some examples:

For a modest fee, the service allows a user to store an unlimited number of digital assets (usernames and passwords, typically) with prepared “letters of instruction” for delivery to beneficiaries after one’s passing. When death occurs, someone notifies the company. Af­ter verifying the demise of the account holder, the company distributes the letters of instruc­tion, which provide account information, pass­words, and access instructions.

Another online company uses e-mail to determine if you are dead, or at least criti­cally disabled. The company sends the ac­count holder emails at pre-arranged in­tervals, according to a schedule of the customer’s choosing. If the account hold­er does not respond, the service sends e-mails (prepared by the account holder) to designated persons, beginning the process of verifying the account holder’s status, and if necessary, transferring authorization to designated heirs.

As digital storage increases, digital ac­cess will become more important—and probably more sophisticated. If you store data in the digital clouds, make sure you provide a way for the right people to find it.

Elozor Preil is Managing Director at Wealth Adviso­ry Group and Registered Representative and Finan­cial Advisor of Park Avenue Securities LLC (PAS). He can be reached at [email protected]. See www.wagroupllc.com/epreil for full disclosures and disclaimers.Guardian, its subsidiaries, agents or em­ployees do not give tax or legal advice. You should con­sult your tax or legal advisor regarding your individu­al situation.