Warning!

Digital assets The future

is upon us
By James Ward, Seddons Solicitors

DIGITAL ASSETS are everywhere. It is almost impossible to exist in todays 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 tip of the iceberg. From my experience I am currently probating
wills and managing powers of attorney for clients born in the 1920s and
1930s, and in the majority of cases a cardboard box, a trainee, and a visit
to their house should result in me 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 article
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 should be little issue 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 such as executors and attorneys who are tasked with managing
the affairs of the deceased or mentally incapacitated client in a very difficult
position. This can be exacerbated when you consider the global ownership of
digital assets and the fact that many of these 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 a digital asset is 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:

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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;
Emai accounts: Google, Yahoo, Hotmail;
Content holders: iTunes, Amazon, eBooks, music, videos;
Government departments: HMRC, voting, powers of attorney;
Online auction sites: eBay, craigslist;
Blogs containing intellectual property;
Domain names and websites;
Virtual currency and gaming: Bitcoins and game characters and items; and
Cloud Storage: Drop Box, Live Drive.

The Uniform Law Commission (ULC) in the United States published a draft bill
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, this article will look in more detail at the efforts being
made by the ULC in relation to digital assets. 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 than physical assets.

What are the issues for fiduciaries and their advisors?

Fiduciaries are under a duty to manage the financial affairs of the donor or
testator with care. This duty is a well-trodden path when it comes to selling a
house or shares or managing individuals bank accounts. However digital assets
provide a unique set of issues.

Identification of a 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, as security of digital assets is a

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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

The apocryphal story of Bruce Willis looking to sue Apple because 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
the 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. This can complicate the picture of what actually is
the asset, let alone whether it can be transferred. It also raises a number of
queries: can you just simply gift the iPod with the music on it, or does the license
allow multiple users if they have the password information, i.e. how would the
company providing the license actually know your client had died if the account
is still accessed?

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 to gain access to an email account that is subject to the laws of the
United States or any other country.
For instance, many 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 from 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
users 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 to what end?

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Is there any value attributable to digital assets?

The answer is yes, and, more importantly, a third party fiduciary is under a duty
to maximise all assets for the testator or donor.
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 among the deceased or incapacitated
persons 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 information for your family and professional advisors.
A startling example of a term of service agreement working against failed
detection is that of 888.com. Their agreement states that an account not used
for six months will be considered dormant, and on dormant accounts the
company will levy a 10 per cent 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. Bitcoins and online gaming investment carry a tangible value and solely
exist online.
What about eBay trading accounts 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? Such issues could bring about tax issues,
such as income tax and inheritance tax, for the fiduciary. This makes it even
more important to locate digital assets and then value them.
Even something as simple as emails may have a value; perhaps 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 persons password, whether for the email account or computer.
It is bad enough when something happens to the key figure of a business, but
when the family or colleagues cannot gain access to their emails or documents
containing customer lists or agreements, then this threatens the existence of the
business itself.
Similarly, monetary value is unlikely to attach to photos, emails, blogs,
Twitter accounts, Facebook accounts etc. in and of themselves, but the
sentimental value is often considered far more important. These are often high-
profile cases, such as Eric Rash, whose parents were the driving force behind

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the US State of Virginia introducing legislation that grants parents post-mortem

access to a minors Facebook 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 clients 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
in 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. Writing down your passwords and login details is likely to be unwise,
and, in any case, these will potentially become 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 that they are likely to be breaking the terms of the service agreement
that governs the digital asset. They could also be 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-
administrators authority to access his deceaseds brother Yahoo email account,
even though the co-administrator had already accessed it and had subsequently
forgotten the password.
Google has potentially shown the way by setting up an inactive account
manager setting. Your client would 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 ten 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
unworkable in the long term. However, there is very little specific law in the UK
dealing with digital assets and third-party fiduciaries.

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Warning! Digital assets The future is upon us

As with digital technologies in general, it would seem that we are set to

take our lead from the US. A number of American states have already enacted
specific legislation authorising fiduciaries access to a deceaseds digital assets.
Also, the ULC will shortly be voting on their proposed 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 persons 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 persons 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.

What will practitioners need to know?

First of all, practitioners will need to be aware of what digital assets are, and
what issues surround them when a client dies or loses their mental capacity.
Hopefully, if you have made it this far in the article, that point can be ticked off!
Secondly, practitioners need to impart this information to their clients when
advising on succession planning and wealth protection. Clients should be asked
about their digital assets as well as their bank accounts, property, and chattels.
They should be encouraged to complete an assets log which can be stored
in hardcopy with their will and their death and madness file at home. They
should be reminded to update this regularly, which is a useful discipline for any
practitioner and provides a good reason to stay in touch with your client on a
regular basis, say once a year.
Thirdly, special care should be taken about digital assets. If a new online
bank account is opened, do not be afraid to tell your client to press print
occasionally.
Fourthly, while there are many issues with doing so, it is sensible to note
down key passwords in case of an emergency. This password log should be
carefully stored. Again, this could be with the will and lasting power of attorney
in a sealed envelope, ideally without the practitioner reviewing the list and
passwords within. This will prevent any issues for the practitioner in knowing
their clients key passwords.

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Finally, suggest that your clients review terms of service agreements on

key accounts so that they are aware of any limitations. This will help them to
assess what if anything can be done when they are still able to do so. Within
this approach, consider how digital assets can be devolved down to the next
generation, for instance by will or into trust.
The STEP Digital Assets Taskforce will shortly be publishing their guidance to
practitioners through the STEP website.

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