Guy Abrahams and Zahava Lever write for FT Adviser on digital assets
Private Client Partner, Guy Abrahams, and Associate, Zahava Lever, have co-authored an article for FT Adviser entitled ‘How to protect your digital assets after death’.
In their article, Guy and Zahava explore what happens to one’s digital assets after death and the steps one should take to safeguard against any misdirection of assets. They also consider the distinction between assets and information, and why it’s an important factor in any estate planning strategy.
This article was first published in FT Adviser on 20 April 2021 and can be accessed here.
What happens to your digital assets after your death, and what steps should you take to safeguard against misdirection of assets, or loss of sentimentally or financially valuable materials?
The first thing to consider is: are your digital assets actually assets? The problem with any discussion of 'digital assets' is that often one is not referring to 'assets' in the strictest sense of the word, but rather to 'information'. Assets and information are treated very differently on death, and it is important to bear this distinction in mind when considering your estate planning.
Why are traditional assets easier to manage?
When you die, your personal representatives are entitled to deal with your assets under long-established legal principles. They prove their entitlement by obtaining a grant of representation, which can be provided to the custodian (for example, a bank) of the relevant asset. The custodian will then transfer the assets to your PRs who distribute them in accordance with your will. Information held by those custodians tends to be readily provided along with the assets; banks, for example, are usually willing to provide historic statements that will enable the PRs to determine the extent of the estate and to file the last self-assessment tax return.
We have never encountered a situation in which such information has been refused by a bank or asset manager. However, that is in contrast to 'pure' information. For example, the General Medical Council will not freely disclose a deceased patient’s files to his PRs on the grounds that the "duty of confidentiality persists after a patient has died". They will provide disclosure only in a limited number of circumstances, which include “when disclosure is required by law”. If there is a legitimate reason for the disclosure – for example, because the PRs are bringing a medical negligence claim – the law has mechanisms for rendering the information available.
Why is cryptocurrency not dealt with in the same way?
The traditional approach to assets evolves from 20th century law, before the conception of the internet and certainly before the cryptocurrency boom. Cryptocurrencies blur the distinction between information and assets, because the asset can only be accessed through the information of the pass key. The risks of losing a pass key are poignantly illustrated by the example of James Howells who, by throwing away an old computer, unwittingly lost millions.
Leaving cryptocurrency to a beneficiary in your will is a helpful indication of your wishes, but there is no custodian the PRs can wave a grant to in order to access the underlying assets. If you have bitcoin, your PRs will only be able to access it with a pass key. It is therefore vital that the pass key is made available to them, either in a sealed letter to be opened on your death, or during your lifetime.
In 2004, 20-year-old marine Justin Ellsworth was killed in combat. His father sought access to his email account, which in effect amounted to a diary. Yahoo declared that it was contrary to the terms of service to release emails. It was not until Ellsworth’s father obtained a court ruling in his favour that Yahoo provided copies of all the emails.
In recent years, Rachel Thompson and Nicholas Scandalios made well-publicised endeavours to obtain photos of their late spouses from Apple. A court order was again required before Apple would release the photographs.
These cases show that cloud-stored photographs are, in the eyes of the relevant service providers, information rather than assets. They do not accept that PRs have any relevant legal rights and rely on their terms and conditions.
When you sign up to Apple you agree that “unless otherwise required by law... your account is non-transferable and that any rights to your Apple ID or content within your account terminate upon your death. Upon receipt of a copy of a death certificate your account may be terminated and all content within your account deleted”. Similarly, Microsoft’s service agreement prevents a user from “[transferring] your Microsoft account credentials to another user or entity”.
We therefore strongly recommend considering the fate of cloud-stored photographs (and other information) when performing a health-check of your estate planning.
Any solution can only be a work-around. You can write down your passwords and give them to your PRs before you die so that they can download photographs, but of course that is a security risk (and invariably a breach of terms and conditions). A password manager may be marginally safer, but it does not deal with the contractual breach issue. But as a slight sweetener, many asset managers provide in-service options, for example Google's Inactive Account Manager, where the account holder nominates an individual who will have limited access to data after the holder’s death.
It is vital that you keep these up to date and if you change your will you should consider whether you need to change your nominees in any of these in-service options.
What do you need to do?
You cannot assume that non-traditional assets will be treated the same way as bank accounts, shares or jewellery. The inchoate nature of our digital lives has not allowed for the same development in process that makes claiming most traditional assets so simple. A grant to prove your PRs’ entitlement is only useful if there is someone to whom they can furnish the proof, which is not the case with cryptocurrencies. Even when there is a Cerberus, a will may not suffice to obtain access because fundamentally the information is considered by the asset manager to be non-transferrable.
You should by no means disregard your digital information when making plans for the inheritance of your assets. It is vital to consider them in your estate planning and even to include them in your will, albeit with the knowledge that it may not be enough to achieve the desired result. If you have recorded a clear expression of your wishes concerning your digital information, that may prove to carry the day if there is any dispute about who is entitled.
The distinction between information and assets gets more blurred by the year, and so as time passes, the problem will only increase. However, it does not seem to be a current priority for the government.
As more of our daily lives move online, we lose a level of control, often without realising. Until the government introduces legislation to regulate the procedures for claiming information assets after death, it is for the individual and their legal advisers to ensure that suitable planning is undertaken.
We recommend that you review your will regularly and when you do so conduct a health-check of all your assets, both tangible and intangible, and seek advice if you are not sure. If you do not do this, your PRs’ job may prove to be significantly more challenging.