Defining Digital Assets

  27-Feb-2019
 

It has now been six months since Coleman Greig published our first piece on the topic of digital assets (‘Dealing with Digital Assets on Death or Incapacitation’), and I am not surprised to see that the trend of litigation against service providers in order to gain access to digital assets continues to rise. Luckily for Australian courts, whilst this rough game of tag is still in full swing - they are yet to be called to play.

This is, of course, not to say that they aren’t stretching their legs on the sideline.

Current state of play

Following a public invite for preliminary submissions, the NSW Law Reform Commission published a consultation paper in August 2018. This paper covered the Commission’s review of laws specifying who has the ability to access a person’s digital assets after they die or become incapacitated (including under what circumstances this may take place), as well as the Commission’s views regarding whether NSW requires new associated laws to be put in place, and in turn, what such laws should include.

The report was divided into five chapters.The first chapter introduced the review and provided an outline of the Commission’s intended approach, with the second providing some background to the meaning of ‘digital assets’, as well as the concept’s context throughout both Australian and global jurisdictions.The paper’s third chapter analysed current Australian laws - including the law of wills, administration of deceased estates, and those relating to assisted decision-making.This third chapter also included an overview of the effects of Australian contract, criminal and privacy laws on the access to digital assets.

The paper’s fourth chapter examined the developments throughout other jurisdictions, with the fifth touching on how to best approach the required reform.

This consultation paper provides an excellent summary of both the current Australian and global states of play with regard to digital assets, and identifies a plethora of associated issues and concerns – as well as potential reforms.

Whilst we already know that there are no laws dealing directly with the accessing or transferring of a person’s digital assets upon death or incapacity, the number of existing laws (within the context of succession) that dance around the issue can be incredibly confusing.

By way of example, whilst estate administration and assisted decision-making laws such as the Powers of Attorney Act 2003 (NSW) require access to digital assets for the nominated fiduciaries to meet their legal duties, contract and criminal laws seem to prohibit such access, as it is debatable whether a deceased’s next of kin or legal personal representative or attorney is ‘authorised’.

For the purposes of this article, I will keep the discussion solely focused on the law of wills.

Digital Assets and the Law of Wills

The Succession Act 2006 (NSW) (‘the Act’) provides that a person may gift property, in which they are entitled, at the time of their death, by Will.They may also specify how property is to be controlled.With this in mind, within the context of digital assets there are three issues with the current law of wills.

Firstly, it is unclear whether digital assets fall within the meaning of ‘property’ for the purposes of the Act.The Act merely defines property as “any valuable benefit”.Section 21 of the Interpretation Act 1987 (NSW) (‘Interpretation Act’) provides a more detailed explanation of ‘property’ by defining it as:

“any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description, including money, and includes things in action”.

Firstly, notwithstanding the specifics contained in the Interpretation Act, whether or not a person’s digital assets actually fall within its definition still remains unclear, as service agreements can restrict user property rights.A common example of this is membership of the QANTAS Frequent Flyer Program.Upon death, and pursuant to the service agreement, membership of this program is automatically terminated, with all points accrued being cancelled and hence not redeemable or transferable.Accordingly, a provision in a Will relating to the disposition of QANTAS Frequent Flyer points, or any other digital asset with a similar restriction, may be ineffective, as it may not form part of a testator’s ‘property’ available to be gifted by Will.

Secondly, the question must be asked: if a testator provides conflicting instructions with respect to their digital assets, which instructions prevail?For example, if a testator notes their intentions on Facebook’s Legacy Contact Tool but then later provides different instructions in a valid Will, it is unknown which instructions would take precedence.

Thirdly, given the longwinded ‘fine print’ of terms and conditions that are often attached to digital assets, estate planners would find themselves trolling through pages and pages of individual policy and service agreements for each digital asset in order to ascertain how testators could deal with the asset upon death.To do so would be a very costly exercise for clients.

To overcome such issues, the NSW Law Reform Commission suggests:

  • that the definition of ‘property’ found within the Act is amended to include digital assets, or that clarity is at least provided with regard to exactly what types of digital assets, if any, can be gifted by Will;
  • that where there is a connection to NSW, clear specifications are provided relating to which laws are to apply; and
  • that the relevant legislation specifies what directions are to take precedent in circumstances where the testator has left competing instructions (e.g. the Facebook Legacy Contact Tool example above).

The definition of digital assets included within newly adopted American legislation (Revised Uniform Fiduciary Access to Digital Assets Act [2015]) only includes electronic records within which an individual has a property right of interest.Fiduciaries of a deceased or incapacitated person in the US are entitled to access a catalogue of electronic communications, but not their content.The same Act also provides that a testator’s instructions on the ability of third parties to access their digital assets will prevail over service access agreements.In a similar vein, an instruction made through an online tool (such as Facebook’s Legal Contact tool) will take precedent over an estate plan direction made to the contrary.

A broader definition included in legislation recently adopted in Canada (Uniform Access to Digital Assets by Fiduciaries Act) sees a ‘digital asset’ defined as a record that is either created, recorded and transmitted, or stored in a digital (or otherwise intangible) form by electronic magnetic or optical means (or by any other similar means).Unlike US legislation, fiduciaries of a deceased or incapacitated person in Canada are entitled not only to electronic communications, but to the content of such communications, with access being granted as if the fiduciary was the account holder.In situations where instructions are conflicted, the ‘last-in-time’ instrument or direction takes precedent.

In assessing which model is to be adopted in Australia, the NSW Law Reform Commission will examine how both the US and Canadian models work in practice, as well as through the invitation of suggestions from the public.Either way, it has been identified that there are substantial policy grounds for legislative reform in the law of wills.

What’s Next?

The NSW Law Reform Commission is now conducting targeted consultations and collating data from an online survey published on their website, with a plan to use this additional information in the drafting of a final report.

Whilst there is no clear solution at present, the consultation paper has provided a number of relevant ideas on how testators can plan for the succession of their digital assets.Although there is no uniform law at present, recommendations such as the appointment of a ‘digital executor’, and the creation of a ‘digital register’ are strategies that a testator can incorporate into their estate plan at present.

If you have a query relating to any of the information in this article, or would simply like to speak with an experienced lawyer regarding the succession of your digital assets, please don't hesitate to get in touch with myself, or anyone else within Coleman Greig’s Wills & Estate Planning team.

 

About the author: Lisa Barca is a lawyer on the Estates and Succession team at Coleman Greig.
 

Join our Newsletter

Platinum Partners