We live in an increasingly digital world, consider the actions you take in your day to day life – paying for your morning coffee through your watch, streaming your favourite movie from an app in your phone, uploading photos to the “cloud,” booking a flight using “points.” Tasks which at one point seemed so odd to us, have now streamlined into our everyday behaviour.
Now more than ever we have valuable possessions which aren’t physical possessions – look no further than the emergence of cryptocurrency. A number of questions arise on adequate preparations for handing on your digital assets. As our use of digital assets continues to grow, it is important you understand and have the appropriate steps in place.
Succession lawyers already advise clients on how to deal with traditional digital assets, such as social media and e-mail accounts, digital music and book libraries, frequent flyer points (if not cancelled automatically under service agreements on death) and online-only bank accounts where there is no paper trail. Cryptocurrencies are a new form of digital asset and there are currently over 2,000 types of them, including Bitcoin.
What Happens if Facebook Launches its own Cryptocurrency?
Libra, the Facebook-led consortium cryptocurrency powered by a version of blockchain, is due to be introduced in 2020 if regulatory concerns can be overcome. On launch, apparently small amounts of this cryptocurrency may be “air-dropped” free of charge to kickstart the system, and amounts can then be transferred from purchaser to vendor using a smartphone App. According to a recent article in the New York Times, this initiative has re-doubled China’s efforts to replace cash with a digital currency, and the expectation is that this will drive cryptocurrency into the mainstream.
How do Digital Assets Pass on Death?
Cryptocurrency is generally protected by cryptographic keys, and therefore on death may never be found and accessed unless the owner provides for the Executors of the Will to be made specifically aware of the cryptocurrency, and given access to their private key.There are currently many issues with succession to digital assets, highlighted by the New South Wales Law Commission consultation paper published in August 2018.
Succession is governed by legislation at State level in Australia.
Section 4 of the Wills Act 1936 (SA) provides that a person may dispose of, by Will
“all real estate and all personal estate to which the person is entitled either at law or in equity at the time of his or her death.”
The Succession Act 2006 (NSW) provides that a person may by Will gift
“property, in which they are entitled, at the time of their death.” “Property” is defined at s.21 Interpretation Act 1978 (NSW) as “any legal or equitable estate or interest….in real or personal property of any description…”
To clarify the inclusion of digital assets in the assets which can be disposed by Will, calls have been made to include in the definition in succession legislation a definition of digital assets similar to the definition in the Uniform Access to Digital Assets by Fiduciaries Act 2016 in Canada, which defines a digital asset as:
“a record that is created, recorded, transmitted or stored in digital or other intangible form by electronic, magnetic or optical means or by any other similar means.”
Terms and Conditions or the Will – Which Takes Precedent?
Even if this definition is clarified, there may be a conflict between the terms of the service agreement entered into between the electronic data custodian and the deceased. One example is where the deceased may have given instructions to permanently delete a Facebook account on death, or appointed a Legacy Contact to update the profile and respond to new friend requests on a memorialised account, and also made a Will dealing with their Facebook account, which instructions should take precedence. It has been recommended that legislation is updated to set out whether such service agreements or the Will should take precedence where a conflict arises.A further issue is that such service agreements often provide for the digital asset to cease on death. It is not uncommon for frequent flyer points to simply be cancelled on death under the agreement, or for the licence to downloaded music or e-books to end on death. If you grant access to your account then your beneficiaries may be able to continue to access your downloaded music or e-books, but this may well be in breach of the service agreement clicked when the account was opened.
Many digital asset custodians are domiciled outside of the jurisdiction and are governed by domestic laws restricting access to digital assets or to information on such assets. Again, current legislation should specify which law should apply to the digital assets of a person in a particular jurisdiction, for example, SA legislation should specify that SA law is the proper law and takes precedence where the deceased was a resident of SA, despite any conflicting clauses as to the prevailing law in service agreements.
Even if the legislation is clarified to specify what digital assets are, and are not, capable of passing by Will, the legal personal representative must obtain information from the custodian about the asset to fulfil his fiduciary and statutory duties. Similar ambiguity arises in the context of obtaining information, as to whether a legal personal representative has access to information on digital assets, whether a service agreement takes precedence, and where there is a conflict of laws, which should prevail.
Most US states have enacted the Revised Uniform Fiduciary Access to Digital Assets Act (2015). Under this act, a legal personal representative’s access to the content of a deceased’s electronic communications is restricted unless the deceased expressly consented to access to content in the Will or other legal record. Where the deceased’s Will grants access to digital assets, these instructions take precedence over any access provisions in a service agreement. If there are no express instructions in the Will, the terms of the service agreement will be followed, and if the agreement does not address access to information on death, the act provides that the legal personal representative can only access a catalogue of the deceased’s electronic communications, and not their content, to protect their privacy.
What Should You Do?
Growingly, the digital aspect of the estate is what causes the biggest problems. For the time being, clients should be encouraged to make a secure “digital register” for their Executors, and make their wishes as to digital assets clear in both their Will and any online tools, to enable simpler succession of digital assets on death.
If you have any questions in regarding this legal alert, please contact Nikki Owen.
This Alert is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters.