Digital assets are part of our everyday lives and are here to stay. The world of digital assets is widespread, but planning for these assets is often overlooked. Further, digital assets have been growing quickly, perhaps too quickly because, unfortunately, the existing state and federal laws on digital assets are underdeveloped. Moreover, online service providers each have their own terms of service (TOS) agreements, and these agreements are not uniform. With the rapid growth of digital assets, lack of current legal guidance, and inconsistent service agreements, it is important for your clients to be aware of potential issues that can arise from their digital assets and plan accordingly.
What are digital assets? Digital assets are items of information created, generated, sent, communicated, received, or stored by electronic means on a system for the delivery of digital information or on a digital device. A digital asset thus is any item of text or media formatted into a binary source that includes the right to use it—think electronic record. The three major groups of digital assets can be defined as textual content (digital assets), images (media assets), and multimedia (media assets).
Current state of the law: Obstacles to access. In the modern world, digital assets have largely replaced tangible ones. The laws governing fiduciary access to these digital assets, however, are scarce, outdated, or nonexistent. Federal and state laws both present obstacles to accessing digital assets. All 50 states have criminal laws prohibiting unauthorized access to digital assets, but only nine states (Connecticut, Delaware, Idaho, Indiana, Louisiana, Nevada, Oklahoma, Rhode Island, and Virginia) have enacted statutes governing digital assets. Numerous other states have proposed legislation or are in the process of drafting legislation. All the existing state statutes grant a fiduciary access to digital assets and eliminate state criminal liability, but there is no uniformity on how they treat digital assets (e.g., types of digital assets covered, whether death or incapacity is covered, and the rights and type of fiduciary covered).
Federal law is outdated and thus provides little guidance on planning for digital assets. The two federal laws governing digital assets are the Stored Communications Act and the Computer Fraud and Abuse Act, both passed in 1986. In fact, federal law may add constraints to planning because it allows access to online accounts or computers only with specific user authorization and makes intentional unauthorized access, including exceeding authorized access, a criminal offense. Under federal law it is unclear whether a fiduciary would be prosecuted if access to a password was directly obtained from an account holder and the fiduciary used the password to access the online account. TOS agreements (those pesky documents that pop up when establishing an account, whose “agree” box users typically check without even reading) are another obstacle to access. Many prohibit a user from allowing another to access the user’s account. In addition, employers usually do not allow anyone to access an employee’s account other than the employee. The U.S. Department of Justice has expressed that it is a crime to violate a website’s TOS agreement; although it has not prosecuted minor violations, it has not expressed what constitutes a minor violation. Fiduciary access to an incapacitated or deceased person’s online accounts may be a federal crime if it “exceeds authorized access” as described in an online service provider’s TOS agreement.
These obstacles leave account holders uncertain about the future of their digital assets, service providers fending for themselves when drafting their TOS agreements, and fiduciaries choosing whether to risk civil liability if they refuse to manage digital assets or criminal liability if they perform their duties.
Current state of the law: Possible solution? On July 16, 2014, the Uniform Law Commission passed the Uniform Fiduciary Access to Digital Assets Act (UFADAA), model legislation that can be enacted by state legislatures.
The primary purpose of UFADAA is to grant fiduciaries the authority to access, control, and manage digital assets while maintaining the account holder’s privacy and intent. It specifically defines a fiduciary as an authorized user, which should avoid liability for the fiduciary under the federal laws as well as applicable state laws that prohibit unauthorized access. Four types of fiduciaries are addressed by the UFADAA: (1) personal representatives/executors, (2) conservators/guardians, (3) agents under a power of attorney, and (4) trustees.
What can we do now? Plan! Fiduciaries face many obstacles with respect to digital assets that do not apply to traditional assets, including password protection and encryption. Therefore, proactive planning for these assets is necessary. Clients should take two critical steps.
First, identify and create an inventory of all digital assets, which should be updated regularly. Many applications exist to help clients plan for their digital assets. For clients who change their password frequently or use many different passwords, applications such as 1Password (agilebits.com/onepassword), LastPass (lastpass.com), and Dashlane (dashlane.com) store all passwords with access to the list through only one main password. Several third-party digital asset storage providers also act as “electronic safe deposit boxes” that release information only on the user’s death or incapacity. These allow clients to easily update information during life and grant their executor or guardian immediate access on death or incapacity. Privacy concerns exist, however, because these storage providers are targets for identity theft. In addition, this is a relatively new industry, and there are no guarantees these companies will still be in business at a client’s passing.
Second, provide the fiduciary access to the digital assets. During life, a client may wish to grant an individual the ability to have immediate access by creating an account with multiple users or appointing an agent through a durable power of attorney. If using a durable power of attorney, a provision granting access to digital assets (which could be specific to certain types of digital assets or broadly apply to all digital assets) should be explicitly included. The power should also expressly provide consent to access such accounts. Currently no states have modified their power of attorney statutes to include digital assets. In addition, a review of the TOS agreement is essential because it may trump any lifetime planning. Your client also may wish to create backup files of his tangible media through DVDs, CDs, flash drives, external hard drives, or a cloud service.
After death, a last will and testament or revocable trust can give a fiduciary access to a decedent’s digital assets. The will or trust can specifically devise digital assets and appoint a fiduciary (such as a “digital executor” or “digital trustee”) to administer the digital assets. Another option is to draft a separate letter of instruction for digital assets and incorporate it by reference into a will or trust (to the extent allowed under state law). Consider including a definition of digital assets in the will or trust (you may want to use your state’s definition if one exists or the UFADAA’s definition). Your client’s will and trust should specifically provide which digital assets are under the fiduciary’s control and where and how to dispose of them after death. Explicit directions are more likely to convince the service providers to grant the fiduciary access.
Conclusion. Amid the developing legal landscape, it is important that your clients establish their own plan to deal with their digital assets. Such a plan is essential to (1) make a transition easier (or perhaps possible) for their family or fiduciary in the event of death or incapacity, (2) prevent identity theft, (3) prevent financial loss, and (4) preserve their digital assets with sentimental value.
ABA Section of Real Property, Trust & Estate Law
This article is an abridged and edited version of one that originally appeared on page 45 of Probate & Property, January/February 2015 (29:1).
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