Category: Book

Property rights vs. contractual rights

Eleanore

To understand digital assets and their management in the estates context, it is necessary to consider the different categories of legal rights which may be applicable to the assets:

  1. Tangible personal property. Tangible personal property is property that can be physically manipulated and moved. Examples of tangible personal property are computers, mobile and tablet devices, and physical storage media including hard drives, memory sticks and flash cards.
  2. Intangible personal property. This is property in which an owner has rights but that generally does not have a tangible physical manifestation. Intangible personal property includes all manner of digital files and records over which an individual has rights of ownership, including the individual’s electronic documents, emails, and digital photos. It also includes domain names.
  3. Contractual rights. Whereas property rights relate to a particular thing and can theoretically be enforced against everyone in the world, contractual rights are personal and enforceable only by and against the parties to the contract, and only in accordance with its terms. In the context of digital assets, contracts govern rights of access to CADA, and in some cases, govern rights of use for particular files or data.

On death, all of a person’s property, including tangible and intangible personal property, vests in the personal representative of the deceased.Personal contractual rights of the deceased, however, generally do not pass to the personal representative unless the terms of the contract specifically provide for enurement of benefits to personal representatives, or specific legislation applies.

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Privacy Legislation for electronic estate

Eleanore

Personal representatives should also be aware of their rights to personal information of the deceased under privacy legislation. Privacy legislation may be raised by providers of electronic services as a reason they are not able to provide a personal representative with access to the account of a deceased. In addition, a personal representative may have need to access or correct personal information on behalf of the deceased. The Personal Information Protection Act (British Columbia) (PIPA) governs the collection, use and disclosure of personal information by private organizations in British Columbia.

Other provinces are governed either by similar provincial legislation or by similar provisions in the federal Personal Information Protection and Electronic Documents Act (PIPEDA). PIPA requires that private organizations obtain the informed consent of individuals for the collection, use and disclosure of personal information. Under section 23 of PIPA, an individual may require an organization to provide him or her with the individual’s personal information under the organization’s control, information about how that personal information is and has been used, and the names of persons to whom the information has been disclosed. The requesting individual then has the right under section 24 to correct any information held by the organization that is incorrect. The Personal Information Protection Regulations made under PIPA specify who may act on behalf of deceased persons and other individuals.

Under section 3 of the Regulations, a personal representative of a deceased person may exercise the rights of the deceased individual under the Act, and give or refuse consent with respect to personal information of the deceased under the Act. If there is no personal representative appointed, then the “nearest relative” of the deceased has the same rights. The Regulations contain a prioritized list to define “nearest relative”.

Under section 2 of the Regulations, a committee, attorney acting under an enduring power of attorney, a litigation guardian, or a representative under the Representation Agreement Act are also given full power to exercise the privacy rights of the individual whom they represent. Because no priority is granted as between these roles, one adult patient may have two or more representatives authorized to exercise their privacy rights under PIPA.

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Powers of executor (or digital executor)

Eleanore

Section 142 of the Wills, Estates and Succession Act provides that a personal representative is granted all of the authority over the estate that the deceased person had while alive, subject to the Act and any contrary intention in the will of the deceased person. In many cases, this general power should be sufficient to give the executor all the legal powers they need to deal with digital assets.

Setting out more specific or expansive powers to deal with digital assets may be warranted where (i) the digital assets will be held as part of a trust (since section 142 confers general powers only on personal representatives and not on trustees), or (ii) the client has extensive digital assets and wishes to have specific powers enumerated. Some professionals have recommended that individuals name a “digital executor” in their will, separate from their primary executor, who is given the power to deal with digital assets. In the author’s view, appointing a separate digital executor will rarely, if ever, be advisable.

Unless the powers of the primary executor are carefully limited to exclude digital assets, it is likely that the primary executor will also have authority over digital assets, raising the possibility of conflicts between the primary executor and the digital executor. If a client wishes someone other than their executor to manage some of their digital assets, it will usually be preferable to authorize the executor to engage that person to assist in dealing with digital assets. Having the third party engaged by the executor in this manner makes it clear that the executor retains authority over and responsibility for the management of digital assets.

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ChVI: Workable solutions

Eleanore

While proper digital estate planning is crucial to the management of one’s digital assets and enduring legacy, the inability of traditional estate planning techniques and online digital estate planning services to provide satisfactory solutions can leave many people at a loss. However, attorneys can still provide workable solutions to the challenges of digital estate planning. First, attorneys should inform their clients about the importance of proper digital estate planning and hopefully get the clients to consider the goals of their digital assets. Proper management of digital assets is about more than just wealth. Legacy, appearance, and family sentiments should help shape the digital asset plan. Not all of digital estate planning will be the preservation of assets. In some
instances, decisions should be made to destroy, delete, and terminate digital assets. This is especially important due to the potential never-ending nature of digital assets.

Attorneys, wealth managers, and financial planners should then help the client compile, update, and retain a comprehensive record of the client’s digital assets, login information, and the location of digital assets. By passing along electronic storage devices such as a computer, phone, camera, or flash drive, many digital assets can be transferred to the deceased’s beneficiaries in the same manner as a traditional tangible asset. However, when dealing with digital assets not stored on a physical storage unit under the individual’s control, the access information may be stored on a password-protected and encrypted digital storage device—such as a flash drive—that the estate planning attorney provides to the client. This type of digital asset management system can allow for the individual to dispose of the storage device via his or her will, but continue to use the digital assets, make changes to the access information when needed, and safely store this information.
While serious concerns still exist with online digital estate planning services,  they should not be discounted entirely. These companies can provide valuable  planning strategies and management of one’s digital assets. However, it is crucial to perform a due diligence  review of any such service before entrusting the service  with access information or details about the digital assets. It is also important to  check with digital service providers to see what their policies are with regards to assets. Knowing the ownership rights and transferability of digital assets is a crucial step. This could also lead an individual to switch service providers if one company offers better digital asset rights.

Currently, there is no quick solution for disposition of digital assets. Instead, it must be a well-thought-out and developed plan that is integrated within the overall estate plan. Keeping track of assets, determining goals, and knowing rights are the crucial steps to maintaining, managing, and securely developing an estate plan for the proper disposition of digital assets.

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CV V: Current Digital Assets Planning Tools

Eleanore

In its current developmental stage, estate planning for digital assets is being done through wills, trusts, and online digital estate planning services. This section explores these three methods of transferring digital assets and discusses their individual shortcomings.
Through the use of traditional wills, individuals may express their intentions and plan for disposition of their assets. However, disposition and transfer of digital assets through wills can be problematic, as briefly mentioned earlier. Given that the average number of specific digital assets per individual is nearly 3,000 files, providing identification and access to all of these assets can be overwhelming. Due to the continuing growth and the changing nature of the digital assets, the will provisions may become quickly outdated. The speed of the digital world seems to outpace these traditional estate planning tools, as passwords and access information can change daily, requiring constant updates to the will. Although the digital property may belong to the decedent, the third-party user agreements and term-and-condition contracts may limit or completely block a beneficiary’s right of access to the decedent’s digital assets. In addition, wills may become a public document upon the decedent’s death; therefore, security and privacy aspects of the transfer of digital assets may be compromised.

Trusts can alleviate some of the above-described concerns. Trusts provide for a more secure transfer of digital assets than wills because trust documents do not become public. Thus, key private information regarding passwords, accounts, and contents remain out of the public eye. Further, the law permits individuals to transfer digital assets into a trust while maintaining control and use of the assets for the remainder of the individual’s life. Sometimes, the trusts are subject to more relaxed formation requirements than wills, allowing for easier creation and modification. As such, trusts can more easily adapt to the changing nature of digital assets. However, very few people actually set up trusts specifically designed for digital estate planning. Although both wills and trusts can transfer digital assets from the decedent to the beneficiaries, they are becoming a tool of the past due to the speed of today’s technology. In response, several online estate planning services have developed in order to facilitate one’s digital asset planning needs. These services are designed to specifically address the digital management, location, and confidentiality of one’s digital assets during an individual’s lifetime.
As such, these digital estate planning services have latched onto the lucrative digital asset management industry—anticipated to be a $1 billion industry in 2013. While these online digital estate planning services offer a degree of efficiency that is unmatched by traditional estate planning techniques—enabling individuals to update, manage, and track their digital assets on demand—serious concerns exist regarding their reliability and sustainability as estate management tools. For example, while digital estate planning services claim to provide exceptional account security, caution is nonetheless warranted because, not unlike a traditional bank vault, these services create a large repository of wealth and property, rendering them prime targets for cybercrime and theft.

Additionally, these digital estate planning services are not regulated and are often not run by attorneys, creating concern as to who is being entrusted with the individual’s passwords, assets, and information.

Finally, there are serious stability concerns as to the continued existence of online digital estate services, as these services are relatively new and turnover in the industry has been significant. However, digital estate planning services such as Eterniam, a Seattle, Washington-based company, are beginning to realize the importance of establishing trust with clients by stressing their commitment to security, privacy, and long-term stability. Estate planning ultimately should not be a short-term solution, but rather should provide lasting peace of mind and planning options to an individual testator.