Digital Assets: a legal minefield

Notes for STEP Verein & Basel Conference, in Zürich – 2nd October 2014

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:-

  • Financial Institutions – payment gateways, banks, credit unions, PayPal
  • Share Trading – spread betting, stockbrokers, etrade, gambling e.g. 888, Saga, Finspreads
  • Social Media – Facebook, twitter, YouTube, MySpace
  • Email accounts – Google, Yahoo, Hotmail
  • Content Holders – iTunes, Amazon, eBooks, music, videos
  • Government Departments – HMRC, voting, Powers of Attorney
  • Online Auction sites – eBay, craigslist
  • Online Gaming sites – World of Warcraft
  • Blogs containing intellectual property
  • Domain names and websites
  • Virtual Currency– Bitcoins
  • Cloud Storage – Drop Box, Live Drive

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.

  • The apocryphal story of Bruce Willis looking to sue Apple as the end user agreement prevented him from bequeathing his iTunes collection to his children was well documented. While that story may not have been true it did peak a great deal of interest in digital assets and raises the issue of their ownership.
  • There is a clear distinction at law between a licence to use and ownership. However many consumers are unaware of this.
  • ITunes opening comments in their end user agreement that so “enraged” Mr Willis states that “The Products transacted through the Service are licensed, not sold, to you for use only under the terms of this license”.
  • Amazon’s License to Access states that “Amazon or its content providers grant you a limited, non-exclusive, non-transferable, non-sublicensable licence to access and make personal and non-commercial use of the Amazon Services.”
  • This can complicate the picture of what actually is the asset and whether it can be transferred.
  • It also raises a number of queries – can you just simply gift the iPod with the music or your Kindle with the books on or does the licence allow multiply users if they have the password information i.e. how would the company providing the licence actually know your client had died if the account is still accessed.
  • Intellectual Property and Copyright may bring about value for individuals posting or writing or storing online, however some Terms of Service Agreement bring issues to ownership and usage.
  • Most providers will acknowledge the intellectual property rights of the account holder, but they may also allow them to have the royalty-free license over the contents of the account for the duration of the contract.

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).

Monetary Value

If a digital asset has a monetary value then it is important to locate and access this asset for two reasons:-

  1. To unlock that value for the client or beneficiaries; and
  • To allow the Fiduciary to adhere to their duty to manage the individual’s estate correctly and settle any taxes owing – inheritance tax, income tax etc.

What digital assets have a monetary value?

  • The obvious digital assets with tangible value are online bank accounts, share accounts, betting accounts, PayPal accounts and spread betting accounts. The value of these assets will be ascertainable without too much issue for a fiduciary and often will have clear access and transfer rules. However, if there is no evidence of an account amongst the deceased or incapacitated paperwork then how does a fiduciary know it exists? With this in mind do fiduciaries have to write to every financial institution to establish whether they have an account for their client? Probably not, but it does show the importance of leaving some sort of assets log for your family and professional advisors.
  • A startling example of a Term of Service Agreement working against failed detection is that of Within their agreement it states that an account not used for 6 months will be considered dormant and on dormant accounts the company will levy a 10% monthly charge.
  • Domain names and websites can have considerable value and carry significant investment. These assets may require regular payments to keep ownership and when the payments stop the asset ceases to be owned by your client. This makes early identification essential.
  • Bitcoins and online gaming investment carry a tangible value and solely exist online.
  • eBay trading accounts where the business solely exists online or a YouTube channel that has opted for monetisation which enables eligible videos to earn money, for instance ‘Charlie bit my finger’ ,which reportedly earns $100,000 per year. Is this a transferable income stream that needs to be valued and can be passed down to the next generation i.e. Charlie.
  • Intellectual property created or stored on the internet can be considered a digital asset depending on how it is owned. A good example of a tangible asset created solely online is the iPad art works created by David Hockney and formerly exhibited all around the world
  • Even something as simple as emails may have a value, not in exact monetary terms, but to a sole trader or family business. When a company operates away from the world of IT departments and managed servers and uses the home computer and generic email account, information is likely to be stored behind a person’s password, whether for the email account or computer. It is bad enough when something happens to the key figurehead of a business, but when the family or colleagues can then not get access to their emails or documents containing customer lists or agreements, then it threatens the actual existence of the business.

Sentimental Value

What Digital Assets have sentimental value?

  • Unless the picture is of someone famous, monetary value is unlikely to attach itself to photos, emails, blogs, twitters accounts, Facebook accounts etc. However, the sentimental value of these accounts are often considered far more important.
  • These are often high profile situations such as Eric Rash, whose parents were the driving force behind the US State of Virginia introducing legislation (Virginia Code Section 64.2-110) that grants parents post-mortem access to a minor’s Facebook page.

As is confirmed below, Facebook now offer the opportunity for relatives to set up a Memorialisation page.

  • Another widely reported case was In Re Ellsowrth (No. 2005-296, 651-DE Mich. Prob Ct. 2005), where Yahoo refused to give the family of a US Marine killed inaction the log-in rights to his email account. Yahoo did comply with the family’s request but only after receiving an order from a Michigan probate court.
  • There is a real danger with sentimental digital assets that if an account is dormant or no payment is made, it could be deleted and the information lost forever.

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.

  • They are likely to be standard
  • It is very unlikely that a company will vary or negotiate them
  • Each Terms of Service Agreement will be different, with little standardisation. This can bring confusion and inconsistency.
  • They will rarely allow the digital asset to be transferred.
  • Common options on the death of a user will be anything from termination and deletion to permission to access only given with the production of the correct legal authority.

Here are a few examples of what happen on the death of a user with some of the major digital asset providers

  • Microsoft; will not provide password or account control but with correct legal authority will give emails on a disc.
  • Yahoo; if you notify them of a death then there would look to terminate your account.
  • Facebook; allow families to memorialise accounts. Photos and comments can be posted but no one can log in or edit.
  • Apple/iTune; as it is only a license, copies can only be made on up to five computers.
  • Google; inactive account manager allows access to a deceased’s account but must be set up to work

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:-

  • Inform clients about issues surrounding Digital Assets
  • Encourage your client to draft a Digital Asset log
  • Suggest your client presses print in relation to key digital assets to assist location of these assets.
  • Prepare written instructions to executors about what you want done if you were to die or lose capacity – for instance memorialisation or deletion of digital footprint etc.
  • Review important T&C’s and consider law in jurisdiction of key accounts
  • Draft an appropriate Will clause and consider appointing a specific executor to manage your digital assets. Will precedent providers such at Sweet and Maxwell and PLC have drafted / are drafting clauses for Wills dealing with digital assets.
  • Detective work needed after someone dies or loses mental capacity. Need to investigate their bank statements, computers, mobile phones, email accounts etc.
  • Consider intellectual property rights of clients and what the position of the service provider is.
  • Liaise with employer (if applicable) as access to work email may assist with location of assets.

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.

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