Sign In

Skip Navigation LinksOneFPA > Journal > Understanding Proposed Legislation for Digital Assets

by William Bissett, CFP®; and David Kauffman, J.D., CFP®

Administering an estate with digital assets including email, blogs, social media accounts, online banking, online photo albums, and more has become a hot-button issue for planners and attorneys. With good reason, professionals are starting to recognize the digital concerns that exist for clients when they die. It is easy to recognize that financial assets pass according to the estate plans for our clients. However, the concept of digital assets and how they pass remains elusive to most financial planners.

Although digital assets are a form of personal property and part of a decedent’s estate, the rights of ownership, control, privacy, and access are intertwined in a complex web of federal law, privacy law, copyright law, intellectual property law, and state law. This has resulted in fiduciaries of estates (executors/personal representatives) with little-to-no legal authority or guidance on identifying, collecting, distributing, and settling a decedent’s digital estate assets.

Often, this leaves the decedent’s advisers and heirs battling with service providers who are understandably concerned about violating existing federal law and safeguarding their users’ privacy rights—both of which currently weigh heavily in the service providers’ favor.

Part of a fiduciary’s job is to manage and distribute digital assets, but all too often, the businesses controlling a decedent’s digital assets refuse to recognize the fiduciary has any authority over such assets and, thus, deny the fiduciary such access. Fortunately, over the last two and a half years, a group of attorneys and legal experts have been working on a solution called the Fiduciary Access to Digital Assets Act.

Current Federal and State Legislation

Current federal legislation that dictates access to digital assets is buried in the Stored Communications Act and the Computer Fraud and Abuse Act, which both passed in 1986 with only minor revisions since. For the most part, these two laws guide the discussion for digital assets and how courts have interpreted the arguably outdated federal legislation to try and coincide with today’s technology.

Nonetheless, a handful of states have started to pass legislation, recognizing that federal legislation dictating the increasing prominence of digital estate assets is lacking. Connecticut was the first state to pass legislation related to digital assets in 2005, and Nevada was the most recent state to take meaningful steps as their law went into effect in October 2013. During that time, Rhode Island, Idaho, Indiana, Oklahoma, and Virginia passed legislation of varying significance.

What’s the Problem?

The overriding premise of the Stored Communications Act (SCA) and the Computer Fraud and Abuse Act (CFAA) is protecting a user’s privacy and preventing unauthorized access to a user’s digital asset(s). Service providers subject to the SCA and CFAA have service agreements that typically limit access to the user, strictly prohibiting “unauthorized access.” Furthermore, many service agreements state the agreement is tied to only the user, and some go so far as to state the rights are non-transferrable.

So when a user dies, executors have a hard time gaining access to online accounts. In the past, this may not have been a significant issue. Today, clients commonly store important information online that can only be accessed with their username and password. For example, online bill pay is tied to the user and not the account, meaning that joint account holders can’t see what bills the other account holder is paying, and that information is private and not shared at the death of one of the account holders.

Fiduciary Access to Digital Assets Act, 2011 to Present

One of the leaders attempting to untangle this web is James Lamm, an estate planning attorney and principal at Gray Plant Mooty in Minneapolis, Minnesota. In May 2011, Lamm and his colleague, Gene Hennig, requested that the Uniform Law Commission (ULC, also known as the National Conference of Commissioners on Uniform State Laws)1 investigate the need to create a uniform state law that would vest a fiduciary with power/authority over online accounts and digital assets when one becomes incapacitated or dies. In January 2012, the ULC appointed a study committee to review the request, and six months later the committee recommended that a uniform law granting fiduciaries access to digital assets was both a necessary and timely legal issue.

In July 2012, the ULC appointed a drafting committee to create a uniform law, and the committee’s first meeting was held in the fall of 2012. At the fall 2012 meeting, the committee assessed whether it made sense to create a proposed law that would address fiduciary access to digital assets by amending the Uniform Probate Code, the Uniform Guardianship and Protective Proceedings Act, the Uniform Power of Attorney Act, and the Uniform Trust code. This was voted down, and it was determined that they would draft a stand-alone act.

For the last 19 months, the committee has been drafting and refining proposed legislation, the Fiduciary Access to Digital Assets Act (FADAA).

Status of the Proposed Act

The primary purpose of FADAA will be to vest fiduciaries with the power to “access, manage, distribute, copy, or delete digital assets and accounts,” according to the National Conference of Commissioners on Uniform State Law’s draft of the act. The act vests four types of fiduciaries with these powers: executors/personal representatives of an estate, conservators for protected person, agents serving under a power of attorney, and trustees.

The drafting committee has been tasked with drafting a proposed law that gives fiduciaries (executors/personal representatives) the right to properly administer an estate, which necessarily includes access to the content of a decedent’s digital estate assets. At the same time, because of the supremacy clause of the U.S. Constitution, the act (if adopted by state legislatures) can’t run directly afoul of existing federal laws—namely the SCA and CFAA—or courts could rule that the SCA and CFAA preempt it. As it stands, service providers must abide by existing federal law in order to protect the privacy rights and interests of users. In particular, the SCA states that a service provider may divulge the “content” of an electronic communication to a non-government entity only when the account holder lawfully consents.2

The obvious problem is that it is impossible to get lawful consent from a deceased account holder unless consent was already granted to the fiduciary of the account holder in his or her estate planning documents. Unfortunately, most Americans still do not have estate documents, and even those who do likely do not have provisions for handling the administration of their digital assets. Furthermore, even if the deceased account holder’s estate planning document granted consent to a fiduciary, neither the SCA nor the CFAA specifically provides for or denies a fiduciary access to electronic and stored communications. In sum, neither law recognizes the legal rights of a fiduciary.3

To combat this, the FADAA drafting committee was clever. The proposed act immediately establishes that a fiduciary has the legal right to “step into the shoes” of the deceased account holder, a right that is well recognized when fiduciaries administer non-digital probate assets.

Because the fiduciary has the same authority as the deceased account holder, the fiduciary is per se “authorized” by the deceased account holder as required under the two federal laws (SCA and CFAA) that prohibit unauthorized access.

The drafting committee also knew that the proposed act would not be enforceable against a service provider if the service provider could simply refuse fiduciary access to the account, because the deceased account holder unknowingly provided such consent by agreeing to a terms of service agreement that the deceased never read. To protect against this, the proposed act states that “fiduciary access, by itself, will not be deemed a violation of a TOSA [terms of service agreement] or deemed an unauthorized transfer of an account.” Beyond that, the TOSA would govern the fiduciary’s exercise of access to the account of the deceased.

Future Concerns

A significant risk here is the amount of time it takes the Uniform Law Commission to agree to a piece of legislation. The longer it takes, the more time companies and consumer rights advocates will have to express their valid concerns about both a living and deceased user’s right to privacy.

Another issue is that once the ULC has agreed to model legislation, it could take the 50 individual states years to pass the legislation. During this time, unsettled issues about conflicting federal and state laws will remain.

If all states rapidly pass the legislation, it would certainly provide more clarity for estate planning for digital assets, but we would expect some service providers would continue to fight the issue in the courts. Ultimately, the courts, and possibly the U.S. Supreme Court, will have to rule with regard to federal preemption.

Despite the proposed legislation, there is still the issue that some digital assets are not transferrable. For example, iTunes accounts are not transferrable, nor are the digital files stored within them. Thus, a client who has a significant amount of music or movies stored in iTunes is not allowed to name a beneficiary of that account and, therefore, will remain unable to transfer his or her rights to someone else. Also, accounts such as Snapfish have inactivity clauses that allow the company to close the account after a period of inactivity.

Legal Challenges

Any good law is going to have to survive legal challenges, and the Fiduciary Access to Digital Assets Act will be no different. Some service providers will not like the fact that they may have to share their now deceased users’ information with fiduciaries as defined by the proposed act. As digital assets continue to become a larger part of 21st century estate planning, we will have to evolve with the times by enhancing our knowledge in this area. Financial planners should pay attention to the development of the Fiduciary Access to Digital Assets Act and its subsequent activity in their states.

The Uniform Law Commission met again in March to fine tune some provisions of the act. Shortly thereafter, the ULC’s drafting committee will submit the proposed act to the commission, which will vote on the act in July. If approved, financial planners should expect a final bill to be released to the states this summer. When this occurs, expect at least a few states to quickly take up legislation to either pass a new law or update their existing law.

Endnotes

  1. Every state, as well as the District of Columbia, Commonwealth of Puerto Rico, and the U.S. Virgin Islands, appoints commissioners to the Uniform Law Commission who propose and draft statutes. Commissioners must then present the proposed law to their jurisdiction, and it is ultimately up to each state to adopt the law as written or their own variation thereof.
  2. 18 U.S.C. §2702(b)(3).
  3. For more information, see Kendal Dobra’s article “An Executor’s Duty toward Digital Assets” In the October 2013 issue of The Practical Lawyer.

William Bissett, CFP®, is a wealth manager with Pinnacle Advisory Group and the founder of Principled Heart (www.principledheart.com). David Kauffman, J.D., CFP®, is a wealth manager at Pinnacle Advisory Group.

Member Access

Includes:
Current Issue
Digital Edition
CE Exams
Supplements
Podcasts

Subscribe

Change Address