Surf the Evolving Web of Laws Affecting Digital Assets

Posted with permission of the authors, Checkpoint and Estate Planning Journal Checkpoint Contents Estate Planning Library Estate Planning Journals Estate Planning Journal (WG&L) Estate Planning Journal 2014 Volume 41, Number 04, April 2014 Articles Surf the Evolving Web of Laws Affecting Digital Assets, Estate Planning Journal, Apr 2014 DIGITAL ASSETS Surf the Evolving Web of Laws Affecting Digital Assets Digital assets present unique challenges for estate administrators, as legislation lags behind contemporary concerns. Author: WILLIAM BISSETT and DAVID KAUFFMAN WILLIAM BISSETT, CFP, is a wealth manager with Pinnacle Advisory Group and lives in Charlotte, North Carolina. He is the founder of Principled Heart (www.principledheart.com). DAVID KAUFFMAN, JD, CFP, is also a wealth manager at Pinnacle Advisory Group, located in Columbia, Maryland. 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 having little to no legal authority or guidance on identifying, collecting, distributing, and settling a decedent's digital estate assets. Oftentimes this leaves fiduciaries at the mercy of battling with service providers who are understandably concerned about remaining compliant with existing federal law. Current federal law and the law of most states fail even to recognize a fiduciary as having authority over digital assets and, thus, deny the fiduciary such access. Fortunately, over the last 2-1/2 years, a group of attorneys and legal experts have been working on a solution-the Fiduciary Access to Digital Assets Act. It is part of the Uniform Law Commission's efforts to

harmonize laws across state lines. With the changing landscape, it is important for advisors to understand the basics of the current state of the law, trends that will influence future legislation, and the implications for clients' estate plans. Current federal and state legislation The current federal legislation that dictates access to digital assets is buried in the Stored Communications Act (SCA) and the Computer Fraud and Abuse Act (CFAA)-both passed in 1986, with only minor revisions since. The CFAA and similar state laws impose criminal penalties and perhaps civil liability too for the unauthorized access of computer hardware, devices, and stored data.1 These two outdated federal laws both dictate how courts interpret matters pertaining to digital assets and affect any legislative progress pertaining to digital assets. In 2005, Connecticut was the first state to pass a law related to digital assets. Since then, Rhode Island, Idaho, Indiana, Oklahoma, Nevada, and Virginia have passed legislation of varying significance. At this point, both Connecticut and Rhode Island's legislation deal with giving access to only email accounts for a deceased resident; the other states have provided varying degree of access to digital accounts for executors. Despite the fact that digital assets continually account for a larger portion of our economic and sentimental lives in the 21st century, governing federal and state law (if any) are woefully inadequate in addressing how a fiduciary administers an estate with digital assets. Uniform Law Commission-2011 to present. In May 2011, James Lamm, Esq., an estate planning attorney and principal at a Minneapolis, Minnesota, law firm, requested that the Uniform Law Commission research the need for a uniform state law that would vest a fiduciary with the right to manage online accounts and digital assets upon the incapacity or death of an individual. The ULC appointed a study committee to determine the need in January 2012. The study committee recognized the dilemma fiduciaries were facing with these newly created "assets" and in July 2012, they recommended that a uniform law granting fiduciaries access to digital assets was both a necessary and timely legal issue. As such, the ULC appointed a drafting committee to create a uniform law and the committee's first meeting was held in the fall of 2012. 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. Instead, it was determined that they would draft a stand-alone act. 2 The second drafting committee meeting occurred in February 2013, and the difficult task of writing a proposed law from scratch was now underway. A draft was presented and discussed in July 2013. The most recent meeting was held in November 2013. The primary purpose of this meeting was to do an

initial reading of the now written draft in the presence of both the committee members and observers. In this meeting structure, the committee literally reads every line of the draft together, discussed attendee recommendations, and modifies the draft legislation as they deem necessary. Current status of the proposed act as of third meeting of the ULC Drafting Committee. The name of the proposed act will be the "Fiduciary Access to Digital Assets Act." The primary purpose of the act will be to vest fiduciaries with the power to "access, manage, distribute, copy, or delete digital assets and accounts." 3 The Act vests four types of fiduciaries with these powers: (1) Executors/personal representatives of an estate. (2) Conservators for protected person. (3) Agents serving under a power of attorney. (4) Trustees. For simplicity, the following discussion of the draft act is limited to its application to executors/personal representatives of an estate. Attendees of November 2013 meeting of ULC Drafting Committee. Including the commissioners on the drafting committee and observers, the room was comprised of estate attorneys, educators, and lawyers with expertise in various areas of the law affected by digital assets, advisors from the American Bar Association, a representative from both Facebook and Yahoo, policy counsel from NetChoice (a trade association of ecommerce businesses and on-line consumers), and General Counsel from the State Privacy and Security Coalition, Inc. (which is comprised of 20 communications, technology, and media companies). Challenges/legal issues While sitting in the meeting room, it did not take very long to recognize the inherent challenges that the drafting committee faces. One of the primary challenges in drafting this proposed Act is that the Uniform Law Commission (ULC) is drafting model legislation that must be enacted by state legislatures. In essence, they are drafting what could potentially become a "state" law, not a federal law. Supremacy Clause. Existing federal laws like the SCA 4 and the CFAA cover when a service provider can disclose a user's digital assets. Thus, the drafting committee must take into account the Supremacy Clause of the U.S. Constitution. 5 According to the Supremacy Clause, "This Constitution, and the laws of the United States which shall be made in pursuance thereof... shall be the supreme law of the land, and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary, notwithstanding." (Emphasis added.) The Supreme Court has ruled that a federal law that conflicts with a state law "preempts" (i.e., trumps) the state law 6 and that state laws that conflict with federal law are "without effect." 7

Due to the Supremacy Clause and the Supreme Court's interpretation, one major challenge in drafting the Fiduciary Access to Digital Assets Act (FADAA) is writing a law that does not directly conflict with existing federal law and could survive a constitutional challenge. That is, if the FADAA in whole or in part, is legally challenged, the drafting committee and states that adopt it do not want a court to rule that FADAA is preempted by the SCA or the CFAA and, thus, not enforceable by fiduciaries against service providers. First consider what the SCA does and does not specifically address. It is what the SCA does not specifically address that gives the drafting committee an opening to write a proposed state law that they believe can be legally interpreted as filling in the gaps of the SCA, as opposed to conflicting with it. The SCA was originally written to provide Fourth Amendment-like privacy protection for certain types of email communications, social networking accounts, and other digital assets stored on a remote server. 8 The Fourth Amendment to the U.S. Constitution protects the "people's rights to be secure in their houses, papers, and effects, against unreasonable searches and seizures." (Emphasis added.) Unfortunately, the drafters of the Constitution did not contemplate a person's "papers and effects" to include personal assets stored on-line or in the cloud by a third-party. The SCA attempts to modernize the reasonable expectation of privacy provided by the Fourth Amendment and later the Supreme Court 9 to include two types of online services, "electronic communication services" and "remote computing services." 10 To provide this privacy protection, the SCA limits the ability of the government to compel disclosure of both "non-content" information (i.e., logs of email communications including addresses of recipient/senders (analogous to the envelope of a letter)) as well as the "content" (what is inside the letter). The SCA also limits the ability of those internet service providers (ISPs) that are "subject to" the SCA to reveal "content" information to non-government entities. 11 Planning Tip The Stored Communications Act, 18 U.S.C. 2702, applies to "a person or entity providing an electronic communication service to the public." Thus, an internet service provider that does not offer services to the public, such as businesses and universities, can disclose both "non-content" and "content" information. Not for governmental entity. In general, the SCA states that certain service providers are permitted to disclose "non-content" information of electronic communications and files to anyone except the government without the consent of the user. However, a service provider may divulge the "content" of an electronic communication to a non-government entity only when the account holder lawfully consents. 12 Like the SCA, the CFAA similarly protects against anyone who "intentionally accesses a computer without authorization or exceeds authorized access." 13 How does an individual go about getting lawful consent from a deceased account holder if consent was not granted in advance? This challenge is especially difficult when acknowledging that most Americans do not even have basic estate documents. Additionally, neither the SCA nor the CFAA specifically

provides for or denies a fiduciary access to electronic and stored communications. In essence, even if Americans had estate documents granting consent to a fiduciary, current federal law does not acknowledge the potential for such a vested right. 14 Creating a legal right. Because the primary purpose of the proposed Fiduciary Access to Digital Assets Act (FADAA) is to allow fiduciaries access to digital assets, the drafting committee's most important task was to create a legal right where none currently existed. That is, the drafting committee had to find a way for a deceased account holder to provide consent to a fiduciary. Fortunately, the drafting committee was able to use existing law for non-digital probate assets in order to provide a fiduciary the right to "step into the shoes" of a decedent to manage digital assets. 15 For example, "Under 3-711 of the Uniform Probate Code, the executor 'has the same power over the title to property of the estate that an absolute owner can have in trust, however, for the benefit of the creditors and others interested in the estate. This power may be exercised without notice, hearing, or order of court.'" 16 In essence, the drafting committee used well-established, existing state laws pertaining to fiduciaries rights over non-digital assets and presumed that since the interest to properly administer both non-digital and digital estate assets are similar, then a fiduciary should be granted the same authority over both types of property. Thus, the proposed act grants the fiduciary the same authority (no more and no less) over the digital assets that the deceased account holder had. Because the fiduciary has the same authority as the deceased account holder, the fiduciary is "authorized" by the deceased account holder as required under the two federal statutes (the SCA and CFAA) that prohibit unauthorized access. 17 The drafting committee also had to be cognizant of the fact that deceased account holders likely registered with on-line services for email, on-line purchases, photo sharing, on-line banking, and a long list of other items now done on-line by first consenting to a terms-of-service agreement (TOSA). The drafting committee recognized that in most situations the account holder likely consented to the TOSA by clicking "I agree" without ever reading it; even if read, the TOSA is an adhesion contract. 18 These TOSAs generally describe the account holder's rights in using the service, how personal information will be protected, the conditions on information sharing, and account holder's rights (if any) upon death. But what happens if a service provider could refuse fiduciary access simply because the deceased account holder consented to (a likely unread) blanket TOSA? The drafting committee has taken this into account by writing the Act such that "fiduciary access, by itself, will not be deemed a violation of a TOSA or deemed an unauthorized transfer of an account." 19 As mentioned above, the proposed Act allows the fiduciary to "step into the shoes" of the deceased account holder with regard to the TOSA with no more and no fewer rights. 20 Of course, a service provider could and probably should have a stand-alone opt-in or opt-out provision (versus a long, blanket TOSA) that specifically addresses fiduciary access post death.

Conclusion Professional advisors need to understand both evolving federal and state laws pertaining to digital assets and the importance of a client's planning ahead for digital assets. As baby boomer clients slowly march through retirement and start to pass away, it will become increasingly important for them to have up-todate estate planning documents. In the recent past, this included a will/revocable trust, financial and health care powers of attorney, and a living will. In the future, granting a fiduciary the right to manage digital assets will become part of the norm. 1 Walsh and Teitell, "Protecting Client's Digital Assets," 153 Trusts and Estates 32 (January 2014). 2 Walsh and Cahn, Memorandum to Committee of the Whole, 2013 Annual Meeting, Boston. 5/23/2013; available at http://www.uniformlaws.org/shared/docs/fiduciary%20access%20to%20digital%20assets/2013am_fada_issuesmemo.p 3 National Conference of Commissioners on Uniform State Laws. "Draft: Fiduciary Access to Digital Assets Act," Drafting Committee Meeting (October 2013). 4 Title 11 of the Electronic Communications Privacy Act of 1986 (18 U.S.C. sections 2701 through 2712). 5 U.S. Const. art. VI. 6 Atria Group v. Good, 555 US 70, 172 L Ed 2d 398 (2008). 7 Maryland v. Louisiana, 451 US 725, 68 L Ed 2d 576 (1981). 8 Lamm, "Thoughts on the Stored Communications Act, Federal Preemption and Supremacy, and State Laws on Fiduciary Access to Digital Assets," Digital Passing (11/4/2013); available at http://www.digitalpassing.com/. 9 Katz v. United States, 389 US 347, 19 L Ed 2d 576 (1967); Smith v. Maryland, 442 US 735, 61 L Ed 2d 220 (1979). 10 SCA, 18 U.S.C. section 2702(b)(3).

11 Kerr, "A User's Guide to the Stored Communications Act-and a Legislators' Guide to Amending It," 72 George Washington L. Rev. 1208 (2004). 12 18 U.S.C. section 2702(b)(3). 13 National Conference of Commissioners on Uniform State Laws. "Fiduciary Access to Digital Assets Act," Drafting Committee Meeting, 10/23/2013; available at http://www.uniformlaws.org/shared/docs/fiduciary%20access%20to%20digital%20assets/2013nov_fada_mtg_draft.pdf. 14 Kendal. "An Executor's Duty Toward Digital Assets." 59 Practical Lawyer 21 (October 2013). 15 Walsh, "Committee of the Whole, 2013 Annual Meeting, Boston," 5/23/2013; available at http://www.uniformlaws.org/shared/docs/fiduciary%20access%20to%20digital%20assets/2013am_fada_issuesmemo.p 16 Lamm, supra note 8. 17 National Conference of Commissioners on Uniform State Laws, supra note 13. 18 Walsh and Teitell, supra note 1. 19 Walsh, supra note 15. 20 National Conference of Commissioners on Uniform State Laws. supra note 13. 2014 Thomson Reuters/Tax & Accounting. All Rights Reserved.