The world is changing faster than ever, and the legal industry is trying to catch up. The rise of Digital Assets and the proliferation of associated technologies is far outpacing the rate at which legal systems can legislate.
With the growth of cryptocurrency and the digital economy, non-access to digital assets is no longer merely an annoyance but a roadblock that has serious financial consequences. Therefore, estate planners are stuck in the awkward position of advising clients who need answers - but without having the law to guide them.
As a result, legal bodies worldwide have begun to recognise that digital assets are not only valuable, but operate in a fundamentally different manner from traditional assets, and consequently are incapable of being treated as such by the law moving forward.
Individuals planning for the future will require digital estate planning tools in conjunction with a legislative regime that recognises fiduciary access - while the duty falls to estate planners to facilitate the proper preparation of a client’s digital estate along with their physical assets.
This article aims to examine what digital assets are, the state of law surrounding digital assets in various countries and what estate planners can do moving forward to solve the digital asset equation for clients and themselves.
What Are Digital Assets?
Digital assets are any item, primarily stored in a digital format, that holds intrinsic, relative or sentimental value.
Examples of digital assets include:
Intrinsic Value - items inherently worth something on the market
- Domain Names
- Computer source code
- Websites/High-Value social media accounts
Sentimental Value - items that aren't necessarily worth a dollar amount but which possess emotional value to loved ones
- Creative projects
Relative Value (not compulsory, but could save you time and money if you had them)
- Legal Documents
The prominence of digital assets cannot be understated. Every person today with a smartphone holds a plethora of digital assets at their fingertips: passwords, email accounts, websites, cloud storage, social media, online gaming platforms, overseas investment accounts and more.
Last year, the Society for Trusts and Estate Planners (STEP) released their white-paper “Digital Assets: A Call to Action” , where they noted that:
- 60% of Estate Planners have dealt with questions from clients about digital assets
- 90% of Estate Planners predict client demand for advice around digital assets will increase
- 1 in 5 estate planners deal with digital assets on at least a monthly basis
- 18% of Estate Planners had been asked about obtaining access to a deceased persons online accounts
- 1 in 5 cited dealing with tech companies such as Google or Apple as a burden when handling digital assets; and that
- Close to half of estate planners have begun preparing to manage digital assets.
Additionally, in Canada, the Ontario Securities Commission released its Crypto Asset Survey in September 2022. The survey revealed that 13% of Canadians currently own crypto assets or crypto funds, and 6% have owned crypto assets in the past. At the same time, a recent industry survey on the perceptions of institutional investors on digital assets revealed that 74% of investors plan to buy or invest in digital assets in the future.
Access or non-access to these digital assets has a substantial impact on the administration of an estate. For example, email accounts are commonly cited as a significant barrier to estate administration, as many of today’s subscriptions, bills, invoices, communications and documents are located in one’s inbox. However, of particular importance is the emergence of cryptocurrency. While digital assets such as websites and passwords have existed for some time, cryptocurrency has significantly impacted estates for two primary reasons.
- Cryptocurrency operates off blockchain technology. A fundamental attribute of blockchain is that it is decentralised - meaning that no governing body controls the system. Transfer money to the wrong person? Sorry - unless they send it back, it’s gone. Lost the password to your account? Sorry, tough luck. This lack of oversight, coupled with the inherent immutability of its ledger (in essence, blockchain transactions cannot be changed or undone), make blockchain technologies a severe problem for administrators of an estate.
- Cryptocurrency is worth a lot in real fiat dollars. Citizens globally are (and have) making significant fortunes in the crypto space, sometimes upwards of hundreds of millions of dollars, and the estate industry has been utterly unprepared for this - consider the following publicized stories.
In 2014, Maureen Henry’s world was turned upside down when her beloved son, Dovi, vanished without a trace. Three months later, his body was recovered from a Toronto Marina on Lake Ontario, but due to the state of decomposition, it wasn't until two years later that a positive identification was made. Desperate to find justice for her son, Maureen Henry took the extraordinary measure of hiring legal counsel who helped her obtain a court order to gain access to his social media accounts. Sadly, her search for answers has yet to bring the closure she so desperately seeks.
In 2018, tragedy struck when the billionaire scion of the BNY Mellon Bank family, Matthew Moody, passed away in a hotel room in Mexico. After decades of struggles with opioid addiction, Matthew was scheduled to check into a rehabilitation facility. Despite this, he was able to make one final, remarkable achievement: he had turned a risky $2 million investment in cryptocurrency XRP/Ripple into a record-breaking $1 billion profit. Matthew had reported that he had kept the digital keys to his assets in cold storage, in other people’s names, across various locations across the United States. However, upon his death he left behind three children and no one with knowledge of the private keys to his cryptocurrency wallet.
Carol Anne Nobel of Toronto was left with a difficult task after the death of her husband, Don Nobel, in 2016. Don, who had been suffering from a rare spinal cancer, had requested that Carol finish writing his book, which was saved to an Apple account in his name. Carol, as the executor and sole beneficiary of Don’s estate, attempted to gain access to the account in early 2017 by providing documentation to Apple. However, she was informed that a court order would be required as providing the password to Don’s account would violate U.S. law, the Electronic Communications Privacy Act of 1986.
Perhaps most famously, in 2018, tragedy struck the crypto world when Gerald Cotton, the 30-year-old CEO of Quadriga crypto exchange, suddenly died while on his honeymoon in India. It was reported that complications from Crohn's disease were to blame. What was not known, however, was that Gerald had been the sole holder of the private keys to $250 million worth of personal and client cryptocurrency assets stored in cold storage. Without him, the funds were unable to be accessed, leaving the crypto world reeling in shock and uncertainty.
Digital Assets In the Law
Globally, the pronounced trend is that digital assets are outrunning legislation. Many of the providences listed below still have no firm legal framework to guide or make decisions about digital assets. However, some have had notable developments and legal cases.
New Zealand currently has no digital asset legislation. In 2020, the Zealand High Court held that cryptocurrencies, as well as digital assets, are a form of property capable of being held in trust.
In Ruscoe v Cryptopia Limited (in liquidation), a cryptocurrency exchange was placed in liquidation after being hacked and losing $30 million dollars worth of cryptocurrency from the exchange. The court held that the three elements required to give rise to a trust were all essentially met.
The Attorney General has asked the New South Wales Law Reform Commission to review and report on laws concerning who can access a person’s digital assets after death, or after becoming incapacitated. The report, informed by 15 preliminary submissions, included the Law Society of NSW, who argued that it was appropriate to include the US model legislation’s classification of four types of fiduciaries, and suggested adding a fifth which addresses small estates.
Alternatively, STEP (the Society for Trusts and Estate Planners)submitted its preference for the Canadian model, which they argued “makes fiduciary rights of access subject to the terms of he instrument appointing the fiduciary, not the terms of service agreement” and for its use of the ‘last-in-time’ priority system “ensuring a person’s most recent instruction concerning the right to access a digital asset takes priority.”
The Law Reform Commission concluded then that in Australia and NSW, it is unclear whether digital assets would constitute property under the Succession Act 2006 (NSW). The Commission argued that this could be resolved by simply amending the definition of property in the Succession Act or clarifying with legislation the circumstances surrounding digital assets and fiduciary access.
In Canada, the Uniform Access to Digital Assets by Fiduciaries Act was adopted by the Uniform Law Commission of Canada. Section 3 (1) of the Act holds that a fiduciary has the right to access all the deceased’s digital assets unless expressly prohibited by a Will.
The Act is consistent with Quebec’s Act to establish a legal framework for information technology which formalises the principle of granting the same legal treatment to documents regardless of their form (so-called ‘technological neutrality’). It was made clear by the drafters of the Uniform Act that privacy laws do not bar fiduciary access in Canada.
Only two jurisdictions in Canada have adopted the model legislation.
On June 29, 2020, the Fiduciaries Access to Digital Information Act came into effect in Saskatchewan; on January 1st 2022, the Access to Digital Assets Act was enacted on Prince Edward Island. Both acts grant fiduciaries the right to access a deceased’s digital assets, but these rights are only granted pursuant to instructions in a will, letters of administration, guardianship court order, power of attorney, trust or other court order.
In Alberta, Digital Assets are partially addressed through the Estate Administration Act (p. 30), which references ‘online accounts’ under the duties of an estates trustee.
At the federal level, a recently proposed ‘Bill C-27’ considers broadening individual rights to control personal data that is held by commercial entities.
United States of America
The main barriers to accessing digital assets in the US is the Electronic Communications Privacy Act - more specifically the Stored Communications Act - which forbids the disclosure of the content of communications which are stored, carried by or maintained by a service; and the Computer Fraud and Abuse Act which prohibits the unauthorised access to computers.
On April 20, 2021, the House of Representatives passed the Eliminate Barriers to Innovation Act of 2021, HR 1602, which directed the Commodity Futures Trading Commission and Securities and Exchange Commission to jointly establish a digital asset working group to investigate and issue a report analysing the legal and regulatory framework and development in the US in the area of digital assets.
In March 2022, President Biden signed an Executive order outlining the government's comprehensive approach to addressing the risks, and harnessing the potential of, digital assets and the underlying technology.
The model legislation on digital assets in the United States, the Uniform Fiduciary Access to Digital Assets Act, was approved by the Uniform Law Commission in 2014. Only adopted by Delaware, it granted fiduciaries broad access to digital accounts. However, it encountered heavy opposition from Internet Service Providers.
In response, the Revised Uniform Access to Digital Assets Act required account holders to “affirmatively bequeath digital assets in order for those assets to be transferred upon death”. If an individual made no plans for their assets, then they are held to the standard procedures of individual service providers.
United States of America - Wyoming
Wyoming is the only jurisdiction in the world to define digital assets in reference to the common law concept of ‘intangible personal property’. On April 5, 2021, Wyoming enacted HB0043 which further defined a digital asset and identified it as an intangible asset under the classification of UCC Article 9. In its 2019 legislative session, Wyoming authorised and passed 13 laws, including legislation that outlines property rights for digital asset owners - dividing them into three categories of intangible property within the Uniform Commercial Code. In response, the UCC asked the State of Wyoming to set aside SF 00125 (which deviates heavily from model legislation).
United States of America - New York State
Article 13-A of the state’s Estates, Powers and Trusts Law provides fiduciaries with legal authority to access and manage the digital assets of a deceased or incapacitated individual based on model legislation.
There have been some notable decisions:
- In New York State Surrogate’s Court, in the Matter of Serrano, the court directed Google to provide the deceased’s contacts and calendar information to the estate’s voluntary administrator but not divulge the contents of any emails.
- In Suffolk County New York, in the Matter of White, the deceased did not include digital assets in his will and did not use Google’s online tool. Therefore the court limited disclosure to contact information associated with the account.
- In the Estate of Swezey, Apple was ordered to allow a grieving husband to access his deceased husband’s iCloud photos.
United States of America - Massachusetts
In Ajemian v Yahoo! Inc, John Ajemian’s two siblings sought access to his email account to identify assets after his death. Yahoo denied all requests pursuant to SCA and their Terms of Service.
Through a series of appeals, the Massachusetts Supreme Judicial Court concluded that the SCA did not prohibit Yahoo from disclosure and remanded the decision to the Probate Court for further proceedings to make two determinations. In 2018, yahoo filed a petition for writ of centiorari, with the US Supreme Court requesting petition to correct the SCJ’s “expansive, flawed, and dangerous interpretation of a federal statute.” In March that year, the Supreme Court declined to weigh in, denying the petition.
The State of Massachusetts adopted Model Act in 2020.
The United Kingdom currently has no legislation dealing with digital assets.
In response to global trends, the UK Law Commission was recently asked by the government to make recommendations for reform; specifically, the Law Commission sought to consider whether digital assets are ‘possessable’.
On October 25, 2022, British Parliament Lower House voted in favour of recognising cryptocurrency assets as regulated financial instruments and goods.
The U.K. government has asked the Law Commission to undertake a project entitled ‘Digital Assets: Which Law, Which Court’ to set out the current rules on private international law as they may apply in the digital context, and make recommendations for reform. The Law Commission aims to publish a consultation paper in the second half of 2023.
In addition, digital assets have made their way into the UK courts multiple times.
In the case of Ion Science Limited & Duncan Johns v Persons Unknown & Others, the High Courts recognised that digital assets are considered property.
In the decision in Tulip Trading Limited v. Bitcoin Association for BSV, questions of fiduciary duties and duty of care were put before the court. The court held that crypto asset software developers and controllers owe neither fiduciary duties or common law duty to owners; and have no obligation to assist owners in accessing their crypto assets if control over them is lost.
Options and Solutions
While the law plays catch up, many estate planners are left asking how to best advise their clients - after all, it’s their responsibility to prepare a client's entire estate, not just half of it.
As Julio Kaplan, author of Chess Life & Review said “all good players agree on one thing: even a bad plan is better than no plan at all”. We, of course, think having a great plan is the only option for digital assets.
Therefore, we’ve curated a list of the most common solutions we see ‘in the field’ used by estate planners globally and created a criterion against which to rank and measure them.
A good solution for handling a client’s digital assets has three core attributes:
- The data is highly encrypted and secure.
- The information is easily accessible and updatable whenever it changes.
- A rigorous death verification process
A great solution will have additional attributes, including:
- Being theft proof
- Physical damage proof
- Having collaboration options
- Allowing for discriminant data release (release specific data to specific people)
- Control over which data specifically will be released.
Below we measure each solution we’ve found against these criteria and apply a score out of 8 based on how many of the attributes they manage to satisfy.
A summary of our findings can be found below:
For years, planners have been advising clients to keep a journal, envelope, checklist or alternative list of passwords, documents and instructions relating to digital assets with their will.
As many well know, this is just as likely to be not done by your client, as to be outdated if/when an executor finally does receive it. Ask yourself honestly - would you sit down and write out a list of all your passwords, then go update that list anytime one is updated?
These so-called ‘paper methods’ for solving digital assets are at risk of theft or loss since the information they hold is unencrypted - and fire/water damage. They also have no death verification system in place - your client simply has to hope no one finds it before they die.
Using an external storage device to store your digital assets is essentially the modern era cousin of the ‘paper method’. Although it seems more advanced, a hard drive still falls prey to many of the same pitfalls: It’s at risk of physical damage or being lost, it has no death verification process, and is not encrypted (some might say that you can encrypt a hard drive, which is true, except then you need some other method to pass on that password itself and you’re right back where you started).
Do not recommend to your clients that they use Google sheets to pass on their digital assets. While the ⅝ score might not seem that bad compared to a papaer wallet, it’s important to note exactly which points Sheets is losing marks on. While a Google sheet is definitely easy to update, and safe from being stolen or destroyed in a fire (and it even let’s you collaborate with others) - it is not secure - They’ve had multiple security incidences [link]. It is important to note that, fundamentally, Google sheets was designed to share data, not protect it. Nothing about this program is designed to store bank details or cryptocurrency - and as an advisor, you are taking on exceptional risk if you’re asking a client to share their passwords with you to pass on to others when they die, or advising them to do so to another.
Password managers are becoming more and more common these days, as the average person now has over 350 passwords in their arsenal (and climbing!). Password managers are indeed theft-proof, physical damage-proof, easy to update, encrypted and secure (although not all password managers are created equal. Lastpass for example, has been hacked 11 times in the past 10 years). Fundamentally for us, the biggest issue regarding password managers is the death verification process - or lack thereof. Every password manager we’ve seen uses a simple deadman switch. You chose a person to receive your data, and when you die they request access. If you don’t deny access within a chosen timeframe, access is given.
This creates all sorts of concerns for us: what happens if you’re in the Amazon Jungle for two weeks without mobile reception? What happens if simply forget to respond or get distracted? What happens if you have a falling out with this person and they break your phone to ensure you can’t deny access? The possibilities are endless.
We were also disappointed to see that none of the password managers we looked at allowed you to choose specific people to receive specific data, let you link your other cloud storage solutions to them, or allowed other parties to collaborate on it with you.
Application Specific Legacy Solutions
Some platform providers have built in legacy solutions.
Examples of this include the Google’s “Inactive Account Manager”, and Apple’s “Legacy Contact”. While these developments are certainly welcome, these features are often lacking and weak in their implementation. Many do not give you access to the data you might actually need (for example, Apple will not provide the deceased’s passwords) and in many ways - they’re just another form of list. They also don’t represent a true ‘solution’ since they only solve for a single platform each, not all of the digital assets in your estate. Having said that, they are secure, easy to update and theft proof. For more information on application specific protocols, please see our article here.
We won’t beat around the bush here - our platform was designed to handle this problem and we do it well. All our data is encrypted with military-grade security, and our platform is physical damage and theft proof. We have a rigorous death verification process to ensure data is only released post-mortem, and we’re easy for your clients’ to update from anywhere - Browser, Mobile or Computer. We allow your clients to choose who receives what data, and let all their advisors collaborate with them too, placing legal and financial documents in the vault on their behalf. If you’d like to know more, we recommend watching one of our online demos.
As the world accelerates exponentially into a more digital future, the law might be slow to adapt but clients aren’t. The role of estate planners is changing rapidly, and the typical estate plan no longer covers their entire estate. Estate planners have a professional duty to have a system in place to handle digital assets for their clients, as well as being able to advise on a variety of digital asset matters. The ultimate conclusion of this issue will be a mixture of legislation providing fiduciary rights, and digital asset platforms providing access.