In today’s increasingly digital world, our lives are intricately interwoven with the virtual realm. From social media profiles and email accounts to online banking and cryptocurrency investment, our digital footprints often leave behind a treasure trove of valuable assets. However, while we may be well-versed in managing our digital lives, the implications of these assets on estate planning are often overlooked. In this blog post, we delve into the world of digital assets, exploring their legal significance, the challenges they pose, and how estate planning professionals can navigate this ever-evolving landscape.
The Legal Landscape of Digital Assets
From a legal perspective, digital assets are considered property, just like any tangible assets. In the U.S., the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA or Act) is a crucial legal framework that acknowledges the rights and authorities of fiduciaries over online digital assets. This Act recognizes the significance of digital property, defining digital assets as “an electronic record of which an individual has a right or interest.” This comprehensive definition encompasses a wide array of assets. Those include email accounts, virtual documents (i.e., Word/Excel/GoogleDocs), photos and videos on digital devices like computers and phones, virtual currencies (i.e., Bitcoin), social media accounts (i.e.,Facebook, Instagram, TikTok, etc.), and more.
The Challenge for Custodians and TOSAs
Custodians, the entities that manage our digital accounts, often have their own rules, known as Terms of Service Agreements (TOSAs), which dictate the access and management of digital assets. These TOSAs can create challenges for digital fiduciaries, who are the individuals appointed to manage these assets in the event of incapacity or death. While some TOSAs grant limited access or licensing agreements to digital assets, others totally restrict third-party access. This poses a significant issue when fiduciaries require access to digital assets for administrative, sentimental, or security reasons.
Selecting a Digital Fiduciary
Selecting a digital fiduciary is a crucial step in digital asset estate planning. This individual should possess both legal and technical expertise, allowing them to effectively and efficiently manage and secure digital assets. Furthermore, the legal documents appointing the digital fiduciary should grant specific authority to access online accounts, electronic devices, and other digital information. This role should be integrated into the overall estate planning strategy, ensuring a smooth transition of digital assets while upholding the asset holder’s individual wishes.
Understanding Fiduciary Access
The RUFADAA distinguishes four types of fiduciaries:
- Agents acting under a durable power of attorney,
- Personal representatives appointed by Will or intestacy,
- Trustees of a Trust, and
- Court-appointed guardians or conservators.
Each type of fiduciary has varying degrees of access to digital assets, reflecting the specific nature of their respective role. For instance, personal representatives and trustees often have default access, whereas conservators require specific court authorization. The Act also emphasizes the importance of user consent for disclosure, which can be managed through an online tool or estate planning documents.
Custodians’ Roles in Disclosure
Custodians play a pivotal role in disclosing digital assets to fiduciaries. They can grant full or partial access to digital assets, as well as provide copies of the digital content. Custodians may request additional documentation from fiduciaries before disclosing assets and may impose reasonable administrative charges for their services. Compliance with fiduciary requests is essential, as fiduciaries can seek court orders to ensure compliance within 60 days.
The Future of Digital Asset Estate Planning
As the digital landscape continues to evolve and become more complex, the importance of integrating digital assets into estate planning cannot be overstated. The RUFADAA’s adoption by a majority of states signifies the legal recognition of digital assets as a critical component of an individual’s estate. Financial planners must stay well-informed about the specific provisions of RUFADAA in their state, ensuring they can provide comprehensive guidance to clients seeking to secure their digital legacies.
Canadian Legislative Developments That Impact the Administration of Digital Assets by Fiduciaries
Saskatchewan became the first Canadian jurisdiction to enact legislation aimed at tackling some of the digital asset issues on June 29, 2020 – when it passed the Fiduciaries Access to Digital Information Act (FADIA). The purpose of the FADIA is to ensure that executors, attorneys for property, and property guardians have access to digital assets. In order to obtain access to digital assets under the FADIA, the fiduciary is required to provide a written request to the online service provider that maintains the digital assets, along with an original or certified copy of the document which authorizes that access. Once these documents are provided, the service provided must comply with the request within 30 days.
One of the greatest obstacles to the effectiveness of the FADIA is the issue of the territorial scope of the FADIA, including unresolved issues around legal conflict. While one can assume that the FADIA is intended to deal with account holders’ resident in Saskatchewan, it is unclear which service providers must comply with the FADIA. Although the FADIA requires service providers to provide access to the account within 30 days after the required documents are provided, many of these companies are located outside of Saskatchewan, notably in the United States. That makes it unlikely that they would comply with the FADIA and likely that they would instead require a Court order from their home jurisdiction.
Since the 2020 introduction of the FADIA, several other Canadian provinces have introduced similar legislation. However, there are still many Canadian provinces that have not yet introduced legislation regarding digital assets, and many questions remain regarding the existing legislation.
In conclusion, the digital revolution has transformed the way we live, work, and interact. But it also means that we may leave behind a trail of digital assets that deserve careful consideration in the estate planning process. Understanding the legal framework, challenges, and opportunities surrounding digital assets is essential for both individuals and estate planning professionals. By incorporating digital assets into comprehensive estate plans, individuals can ensure the seamless transfer of their digital legacies while safeguarding their wishes for the future. Please contact Cardinal Point to discuss how best to deal with the digital assets within your own estate plan.