Digital Assets; a legal minefield
Notes for STEP Verein & Basel Conference, in Zürich – 2nd October 2014
James Ward TEP; Seddons Solicitors
Digital assets are all around us….
It is almost impossible to exist in today’s world without owning, relying upon, referring to or communicating through some form of digital asset. The internet is increasingly becoming the main storage of our financial and personal lives and there seems to be no stopping this increase in the future.
For private client practitioners the issues to such a diverse digital ownership is only at the beginning. Currently Wills are being probated and Powers of Attorney being managed for clients born in the 1920’s and 1930’s, and in the majority of cases a cardboard box, a trainee and a visit to their house should result in getting all of the information needed to allow their executors, administrators, trustees and attorneys to manage their affairs.
However each generation will leave a larger digital footprint, with most of the ‘baby boomers’ embracing digital technology such as photos, bank and share accounts, Skype, eBay and even Facebook.
With this in mind, this presentation should be treated as a timely warning to practitioners about what they should be doing in relation to digital assets owned by their clients and the issues they must consider.
The key premise is that there are few issues with the management of digital assets by the client during their lifetime while they have the capacity. However, when the client dies or loses their mental capacity, suddenly they will not be able to locate, access or transfer these assets.
This places the third party fiduciaries, who are
tasked with managing the affairs of the deceased or mentally incapacitated
client, into a very difficult position. This can be exacerbated when you
consider the global ownership of digital assets and the fact that many of them
have very low visibility, making them hard to locate.
The best place to start must be a definition of exactly what a digital asset is?
What are digital assets?
Effectively they are any asset that is accessed or held online. There is vast array of online providers holding items that could be classed as an asset such as:-
The Uniform Law Commission’s (ULC) in the United States approved a draft bill in July 2014 looking to deal with the issue of digital assets called the Fiduciary Access to Digital Assets Act (FADA). Given that the vast number of digital assets derive from the United States, it is important to look in more detail at the efforts being made by the ULC in relation to digital assets.
In the meantime their 2013 draft defined digital assets as follows:-
‘a) information created, generated, sent, communicated, received or stored by electronic means on a digital device or system that delivers digital information and includes a contract right; and
b) an electronic system for
creating, generating, sending, receiving, storing, displaying or processing information
which the accountholder is entitled to access’
As it is evident, the term digital assets covers a multitude of items and existences and because of this they can cause far greater issues for third party fiduciaries.
However in their final draft, they simply defined it as follows:-
‘“Digital asset” means a record that is electronic. The term does not include an underlying asset or liability unless the asset or liability is itself a record that is electronic.’
What are the issues for fiduciaries and their advisors?
In this context the term fiduciary refers to executors, administrators, trustees, attorneys and deputies.
Fiduciaries are under a duty to manage the financial affairs of the patient or testator with care. This duty is a well trodden path when it comes to selling a house or shares or managing an individual’s bank accounts. However digital assets provide a unique set of issues.
Identification of digital asset.
This may sound like an obvious objective and it can apply just as well to a physical asset as a digital asset. However, with security of digital assets being a paramount feature, most digital assets are protected by passwords or complex log in details. All correspondence and details are also likely to wholly exist online, usually in a password protected email account, which in turn could be used as the key to unlock the account.
Frequently there will be no paper trace of a digital asset.
All this makes it much harder for a fiduciary to even know about the asset, let alone access it.
Uncertain status of ownership and control
Ownership versus License.
Location of assets in a different legal jurisdiction
Most clients will be fully aware if they own assets in a different country; however this is more than likely to be a holiday home. When advising a client on the ownership of a foreign asset a UK practitioner can consider the interaction of UK tax and succession laws alongside local advice and be well prepared when the client dies. The same luxury will not be afforded to them if they try and get access to an email account that is subject to the laws of the United States or any other country.
The jurisdiction of succession can often depend on local laws and may be based on the situs of the asset and/or the domicile of the deceased. This can pose a number of issues.
Another example of an issue is that US internet providers
will be subject to the Stored Communications Act which extends Fourth Amendment
protections against unreasonable search and seizure to data stored remotely on
computer networks. This has the effect of
prohibiting social media companies releasing data unless there is lawful consent of the original user. On this basis a US court would need to grant a court order expressly stating that the fiduciary had the user’s lawful consent.
Further issues can arise from different jurisdictional laws in relation to copyright, commercial privacy and data protection statutes. This can all lead to the price of access being a very costly business, and what for?
Is there any value attributable to digital assets?
Yes, but can more often than not be divided by monetary value and sentimental value (i.e. no economic value).
If a digital asset has a monetary value then it is important to locate and access this asset for two reasons:-
What digital assets have a monetary value?
What Digital Assets have sentimental value?
As is confirmed below, Facebook now offer the opportunity for relatives
to set up a Memorialisation page.
Legal, practical and security difficulties with sharing passwords/logins
Surely the easiest way around all of these issues is just using the deceased or incapacitated client’s password to access the assets. Well in some cases this may be the quickest solution but this is not something that can easily be recommended, especially to practitioners and fiduciaries.
Security is the key to people using and investing so much time and money into the online world and digital assets. On this basis people generally keep their passwords a closely guarded secret and will look to change them on a regular basis. Therefore writing down your passwords and login details is likely to be unwise and potentially out of date very quickly.
Even if a fiduciary does have access to an up-to-date set of passwords, what is their legal position if they log on as the deceased or incapacitated. The answer is they are likely to be breaking the Terms of Service Agreement that governs the digital asset. They could also by breaking the Computer Misuse Act 1990 in the UK or the various Computer Fraud and Abuse Acts (CFAAs) in the US along with other local laws depending on the actual location of the digital asset.
If the fiduciary has the correct legal authority then they may avoid the issues under the various laws, however the Terms of Service Agreements can be enforceable. As you can imagine very few people read these when purchasing or creating the digital asset and most will prohibit post-mortem transfer or access altogether. For instance Yahoo recently refused to accept a co-administrator’s authority to access his deceased’s brother Yahoo email account, even though the co-administrator had already accessed it but had subsequently forgotten the password.
Google have potentially shown the way by setting up
an Inactive Account Manager setting. Your client would actually have to set
this up, but when done, after a predetermined period of inactivity of a Google
account, Google will undertake to notify up to 10 ‘beneficiaries’ before
they delete the account. The ‘beneficiaries’ can then get access to the content within the account.
Lack of guidance by the law
Most of the control surrounding access and transferability of digital assets has been maintained by the individual companies. This is far from ideal and long term unworkable. However there is very little specific law dealing with digital assets and third party fiduciaries.
As with the digital age it would seem that we are set to take our lead from the US. A number of US States have already enacted specific legislation authorising fiduciaries access to a deceased’s digital assets. Also the ULC recently approved their FADA Act. The draft act would grant fiduciaries broad authority to access and control digital assets and accounts.
FADA is intended to clarify and expand who can access a deceased or incapacitated person’s online accounts. The proposal would create four categories of fiduciaries who would be able to take over these accounts in the event of a death or loss of mental capacity: a personal representative of a deceased person’s estate; someone carrying out a power-of-attorney; a trustee of a trust; or someone appointed by a court to act on behalf of a protected person.
However the Act would still need to be taken up by the US States before it could become law. Even though it was drafted in consultation with major companies in the digital asset sphere, it is likely to meet opposition. The idea that a fiduciary can replace the original account holder poses a number of practical and legal issues that they would undoubtedly look to avoid if possible.
Currently there are no plans for a specific digital asset law in Europe and the UK.
Terms of Service Agreements
Every digital company will have a Terms of Service Agreement that an individual will have to sign up to before they can use the service, but how many can say they actual read the conditions.
Here are a few examples of what happen on the death of a user with some of the major digital asset providers
What should practitioners do now?
Practitioners will usually encounter these issues after someone loses mental capacity or dies. However it is very important to be aware of digital assets when taking instructions from a client when drafting a Will or a Lasting Power of Attorney. So here are a few suggestions below:-
The STEP Digital Assets Working Group will shortly be publishing their guidance to practitioners through the STEP website.
James Ward TEP heads up the Private Client Department of Seddons Solicitors, London. He specialises in all areas of succession law and estate planning. He is a committee member of the STEP Mental Capacity Special Interest Group and also on the committee of the STEP Digital Assets Working Group.