The increasing importance of digital assets to an individual’s estate planning has been recognised by the NSW State Government. The NSW Attorney General has asked the NSW Law Reform Commission to review and report on the laws that effect who can access a person’s digital assets after they die or when they become incapacitated, and in what circumstances. The purpose of the Commission’s report is to consider whether NSW needs new laws in this area and if it does, what should be included in those new laws.
It is evident from this development that the significance of considering digital assets as part of an individual’s estate planning continues to be an issue that is front of stage.
After requesting preliminary submissions from interested parties, the Law Reform Commission has published a Consultation Paper. This paper, in addition to outlining how the Commission intends to conduct the review, also describes the current laws that impact access to digital assets in circumstances where a person is incapacitated or is deceased. The very apparent and extraordinary increase in the use of digital assets by many of us has clearly motivated these questions being referred to the Law Reform Commission.
The paper also outlines the approaches that have been taken in other jurisdictions including the United States, Canada, the European Union and the Council of Europe.
The Commissioners have noted that their “preliminary view” is that there are substantial policy grounds for legislative reform to govern when third parties can access a person’s digital assets upon death or incapacity.
The timing of the comparable legislative reforms in other jurisdictions is relatively recent. For example, the Uniform Law Commission in the US adopted the Uniform Fiduciary Access to Digital Assets Act in 2014. It is encouraging that an Australian jurisdiction is now embarking on a review of the relevant laws in Australia.
In response to the suggestion that it is an area of reform that should be conducted on a national level rather than by a State Government, the Consultation Paper notes that national coverage can be achieved where one State or Territory enacts model provisions that are adopted elsewhere. The approach of each jurisdiction “following suit” may take significant time and national coverage is not guaranteed.
The Consultation Paper also includes an overview of what is included in the term “digital assets”. The overview is not intended to be exhaustive but confirms the concept of digital assets includes the following:
- Personal assets such as email accounts, text messages, social media profiles and accounts and similar accounts;
- Financial assets such as online bank accounts and cryptocurrency;
- Business assets such as online store accounts (such as eBay);
- Intellectual property rights that are attached to assets such as domain names and images;
- Loyalty program benefits such as frequent flyer points;
- Sports gambling accounts; and
- Online gaming accounts.
In addition to being a useful reminder of the extensive nature of the term ‘digital assets’, the overview in the Consultation Paper confirms the proposed reforms should extend to all categories of digital assets.
The focus on ‘Access to Digital Assets’
It is clear from the above that the question being asked is in relation to access of those digital assets upon death or incapacity. The Consultation Paper also identifies the importance for this right of access for the relevant people including executors, attorneys, financial managers and personal representatives generally. The paper confirms these reasons as follows:
- Financial value. For example, the deceased person may have significant funds in a bank account or a bitcoin account, or there may be other social media accounts which generate value. There may even be a valuable copyright interest in a literary work that only exists online;
- Sentimental value. This reason will be relevant where a deceased person has family members that have an attachment to electronic photos or messages on social media such as Facebook;
- Loss of paper trails. Access to certain account statements will be important for personal representatives to manage business accounts or personal banking accounts of the deceased or incapacitated person;
- Protecting privacy and confidentiality. Often online accounts will contain personal information which a personal representative will look to protect by either closing or deleting the relevant account; and
- Reducing the risk of identity fraud. Where the relevant individual is not monitoring their online accounts, it clearly will be more open to hacking by others.
Guidelines for current practice
The Consultation Paper notes the growth in the creating of “digital asset registers” and digital asset inventories especially as part of the estate planning process.
As the Commissioners note in the Consultation paper, there are currently some significant limitations with how individuals can successfully deal with their digital assets as part of their estate plan. This point is important for estate planning practitioners and their clients.
The existing laws effecting third party access to digital assets (including for the nominated representatives) as noted in the Consultation Paper include the following:
- The definition of “property” in succession laws may not extend to the rights that are commonly referred to as digital assets;
- The legislation dealing with the administration of an estate does not specifically cover access by the executor to “digital assets” of the deceased. Without the required access to these assets there is a real problem for an executor or administrator being able to demonstrate that they have fully discharged their responsibilities in respect of the administration of the estate;
- The service agreements of internet and social media platform providers often maintain the intellectual property rights to material that form part of the “ digital asset”. In particular, on the death of the owner of the account, there is no right to transfer any rights to the material to another party (the rights are often non-transferable);
- Existing criminal law legislation makes it an offence for a person to cause any unauthorised access to or modification of restricted data held in a computer. As a result, an executor who accesses a computer upon death or incapacity of a person when they should know that they do not have clear authorisation, is at risk of having committed a criminal offence. As indicated in the Consultation Paper, the scope of the offence is quite broad as there is no requirement for intention to commit or facilitate the commission of the offence. There is no defence of lawful excuse in these circumstances. It is quite likely that the executor or administrator will know, or should know that the access to or modification of the material on the computer is unauthorised. The phrase “unauthorised access” is defined in the legislation in broad terms.
Preliminary suggestions for reform
The Law Reform Commission also identifies some difficult situations for the State Government to address. For instance, in relation to the service agreements where the service provider is a foreign entity, the agreement will often nominate the foreign law as the proper law for dispute resolution rather than a law of Australia even if the client signing the service agreement is in Australia.
The paper foreshadows that the final report may include a legislative approach that tries to address some of the issues referred to above. As part of that suggestion, it identifies some examples of what has been done overseas and potential approaches.
As the paper is a preliminary report with a final report to follow after further consultation, at this stage these suggestions are only preliminary ideas.
Importantly, in respect to the definition of a digital asset, the paper makes the following comment:
“The definition of digital asset should be defined in a way that “is sufficiently broad to cover the types of assets currently in existence, but also flexible enough to encompass relevant classes or types of assets that may come into existence in the future”.
At the end of the paper, there are a number of suggestions in relation to potential reforms. The following suggestions by the Commissioners are particularly relevant to the area of estate planning:
- To determine which third parties should have access rights to the assets;
- Who should have the authority to decide what happens to a person’s digital assets;
- What should happen if the relevant parties disagree;
- To clarify how the wishes of a person should be taken into account when deciding about their digital assets where upon death or incapacity; and
- To be able to freeze or suspend a person’s digital assets after their death or incapacity to avoid issues of identity theft.
The Consultation Paper produced by the NSW Law Reform Commission is an excellent summary of the issues and makes some thought provoking suggestions as to the reform.
There is already eager anticipation by many for the release of the final report by the Law Reform Commission and the discussion that will follow the release of the final report.