Monday, October 23, 2017
The death of a family member or other loved-one is often difficult circumstance for the family and other close ones that are left behind. From a financial and tax standpoint, however, proper and thorough estate planning is the key to minimizing and potentially eliminating more distress associated with the decedent’s passing.
One aspect of estate planning that does not involve technical tax planning or entity structuring or other crucial legal aspects involves cataloguing where the decedent’s important documents are located and who has access to them. In the past, that has often involved counseling clients to make sure that they have a filing system for key items such as insurance policies, contact information for utility companies, and contracts and warranty information for equipment and appliances, etc. In addition, a safety deposit box and/or safe has commonly been suggested for the storage of critical documents such as a will, power of attorney, or trust as well as real estate deeds and similar items.
But, in recent years a new issue has arisen in the estate planning realm. This issue involves the decedent’s digital assets such as electronic mail (email) accounts, bank accounts, credit cards, mortgages, and any other type of digital record as well as electronically stored information and social media accounts. Even business assets have become digitized. Depending on the decedent’s type of business, the extent of digitization of business records and information can be quite large.
So, what is the big estate planning issue with digital assets? It involves who has access to those assets upon death and whether appropriate language is included in estate planning documents to provide that access. A recent court decision in Massachusetts brings the issue front and center.
That’s the topic of today post – digital assets and estate planning.
Interestingly, federal law governing privacy rights to electronic communications goes back over 30 years. The Stored Communications Act (SCA) was included as part of the Electronic Communications Privacy Act of 1986. 18 U.S.C. §§2701-2712. That SCA created privacy rights to particular electronic communications and associated files from disclosure by online service providers. However, with the development of the internet and email communication that started in the mid-1990s, the SCA created a significant problem for fiduciaries and family members that needed access to the decedent’s online records and accounts. The SCA bars an online service provider from disclosing the decedent’s files and/or accounts to the estate fiduciaries or others unless the requirements for an exception contained in 18 U.S.C. §2702(b) are satisfied. But, even if an exception is satisfied, the service provider is not required to provide access to or otherwise disclose the contents of the decedent’s digital files or online accounts. Voluntary disclosure is the rule upon “lawful consent” of the “originator” or “subscriber.” 18 U.S.C. §2702(b)(3). In addition, the statute does not clearly state whether an estate fiduciary (e.g., executor or personal representative) can give the required “lawful consent.”
Facts. In a recent decision, the highest court in Massachusetts held that “…the personal representatives may provide lawful consent on the decedent’s behalf to the release of the contents of the Yahoo email account.” Ajemian v. Yahoo!, Inc., 478 Mass. 169 (2017). The facts of the case indicate that the decedent died intestate in 2006 as the result of a bicycle accident. The decedent had, at the time of death, an email account. However, he didn’t leave any instructions regarding how to handle the account after his death. Two of his siblings were appointed the personal representatives of his estate, and sought access to the contents of the email account. But, the service provider refused to provide access on the basis that it was barred from doing so by the SCA. The service provider also claimed that the terms of service that governed the email account gave the service provider the discretion to reject the personal representatives’ request.
Court determinations. The personal representatives sued, and the probate court granted the service provider’s motion to dismiss the case. On appeal, the appellate court vacated that judgment and remanded the case for a determination of whether the SCA barred the service provider from releasing the contents of the decedent’s email account to the personal representatives. On remand, the service provider claimed that the SCA prevented disclosure and, even if it did not, the terms-of-service agreement gave the service provider the right to deny access to (and even delete the contents of) the account. The appellate court granted summary judgment for the service provider on the basis that the SCA prohibited disclosure (but not on the basis of the terms of service contract).
On further review at the Massachusetts Supreme Judicial Court, the personal representatives claimed that they were the decedent’s agents for purposes of the exception of 18 U.S.C. §2702(b)(1) which gave the service provider the ability to disclose the contents of the decedent’s email account to them. However, the Supreme Judicial Court did not buy that argument, determining instead that a person appointed by a court does not fall within the common law meaning of “agent” citing Restatement (Third) of Agency §1.01 comment f. As to whether the personal representatives “stepped into the shoes” of the decedent as the originator of the account and, thus, could lawfully consent to the release of the contents of the email account under 18 U.S.C. §2702(b)(3), the Supreme Judicial Court held that they could, reasoning that there was nothing in the statutory definition or legislative history that indicated an intent to preempt state probate and/or common law allowing personal representatives to provide consent on a decedent’s behalf. The Supreme Judicial Court vacated the appellate court’s judgment and remanded the case to the probate court.
Revised Uniform Fiduciary Access To Digital Assets Act
While the Ajemian decision holds that a personal representative can meet the “lawful consent” exception of the SCA, a service provider is still not required to provide the desired access to digital records. However, under the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), a state law procedure is provided that fiduciaries can use to get access to online accounts (or other digital assets) of a decedent. The RUFADAA defines a “fiduciary” as a person appointed to manage the property of another person in that other’s person’s best interest. In essence, the RUFADAA empowers a fiduciary to manage another person’s “digital assets.” However, under the RUFADAA, the fiduciary must still get consent from the “owner” to be able to manage certain digital assets such as electronic communications and social media accounts unless the original user consented in a will, trust, power of attorney, or other record. Once that consent is obtained for digital assets that require it, if the service provider doesn’t comply with a disclosure request, §16(a) of the RUFADAA allows the personal representative to file a legal action seeking a court order requiring the service provider to comply with the personal representative’s request.
The majority of states have enacted the RUFADAA (or a substantially similar version thereof). Those that haven’t are: CA, DE, GA, KY, LA, MA, ME, MO, NH, OK, PA, RI, WV and the District of Columbia. Some of these states may enact the law in the near future. 2017 saw action in numerous state legislatures. As noted, MA has not enacted the RUFADAA, so a question is raised as to whether the court’s analysis in Ajemian would have differed, as well as how the RUFADAA would have impacted the SCA.
Digital Asset Planning Suggestions
What needs to be considered with respect to digital assets and an estate plan? The access question looms large. Who is to have access to digital assets and information post-death? From a will drafting standpoint, if a specific gift of digital assets is not made, the digital assets will be disposed of under the will’s residuary clause (“all the rest, residue and remainder of my estate”). Also, what type of access is the estate fiduciary to have? The type of access (such as the ability to read the substance of electronic communications) should be clearly specified in the owner’s will or trust. If access to digital assets and information is to be granted to a third party before death, the type and extent of access should be set forth in a power of attorney. On this point, the type of power of attorney matters.
Even with the authority to act as provided in a will, trust or power of attorney, it is likely that a service provider (or similar “custodian”) will require that the fiduciary obtain a court order before the release of any digital information or the granting of access.
While many people do not have estate planning documents in place at death, a very high percentage of decedents have at least some digital assets and/or accounts at the time of death. Some may have significant value. Others may have significant sentimental worth (such as photos). Thus, the ability to deal with and manage those assets post-death is very important. Technology has created additional legal and planning issues that should be accounted for.
The RUFADAA contains many associated comments that answer a lot of questions. To learn more, click on http://www.uniformlaws.org. Under the “Acts” tab, click on “Fiduciary Access To Digital Assets Act.”