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Digital Assets: Modern Realities Versus Lagging Legalities

Our digital asset inventories - electronic tools, digital currencies, files, and various online accounts - continue to grow. Five years ago, the McAfee Digital Assets Survey estimated that Canadian consumers valued their digital assets at over $32,000 per person, which is not an insignificant matter from an estate administration perspective, and one which, as this post explains, requires urgent attention from Canadian lawmakers.

Digital assets are different from tangible property that traditionally comprises an estate. Aside from the practical hurdles of transferring digital assets, such as the ability to locate and access them, some digital assets, especially those stored on or associated with online accounts, can also be subject to legal hurdles.

A key issue is that user agreements that govern online accounts are subject to privacy laws that can limit their owner's ability to share access with third parties, including with the executors of their estate. It is generally the privacy (and dispute resolution) laws of the jurisdictions where the account providers operate that will apply.

For instance, in the U.S., the federal Stored Communications Act ("SCA"), which protects the privacy of digital communications, has always given online account providers discretion for disclosure where lawful consent of the owners of the accounts is provided. Historically, however, there has been no consensus with respect to what constitutes lawful consent for this purpose and account providers have tended to err on the side of caution, rather than risk privacy breaches. You may recall the 2012 story of the late U.K. model Sahar Daftary, whose family sought access to her Facebook account in a federal California court with the hopes that it contained information about the cause of her death. The court refused to order Facebook to provide such access. Not every estate representative would have the financial resources to seek legal remedies in other countries.

Even if user agreements were subject to the laws of Canada, we currently do not have legislation that assists with access to digital assets. The federal Personal Information Protection and Electronic Documents Act may permit disclosure of certain personal information stored online, however, this act does not compel online providers to do so in an estate administration. Alberta's Estate Administration Act, the only Canadian succession-related statute to make reference to online accounts (in Canada, succession law, just like property law, is under the jurisdiction of the provinces and territories), requires the identification and determination of the full nature and value associated with a deceased individual's online accounts for the purpose of administration an estate, however, this statute has no bearing on online account providers' provision of access to such accounts.

An inability to access digital assets clearly hinders an executor's ability to fulfil their duties to the beneficiaries and to tax authorities, if the assets must be valued and reported for tax purposes. This is a concern that estate practitioners have been grappling with for a number of years. Some progress, however, has begun.

In 2016, the Canadian Uniform Law Commission (an organization that promotes uniform legislation in areas of provincial and territorial law where national uniformity is beneficial) proposed a model Uniform Access to Digital Assets by Fiduciaries Act (2016) ("UADAFA") which, if adopted, would authorize fiduciaries - i.e. attorneys, guardians and estate executors - to access digital assets where the terms of a will, grant of probate, a court order or an express statement in a user agreement, provides for such authority.

The UADAFA follows the U.S. Uniform Law Commission's similar proposal in 2015 of the model Revised Uniform Fiduciary Access to Digital Assets Act (2015) ("RUFADAA"), which is expected to help codify the standards for consent for the purposes of the federal SCA. The RUFADAA has been introduced by more than forty of the American states, whereas the UADAFA has yet to proceed to the legislature of any Canadian province.

Although the model UADAFA leaves unanswered concerns for Canada, it is a stepping stone towards a legal regime for digital asset succession. Until this regime is in place, however, and seeing how the key obstacles revolve around privacy and the question of lawful consent, it is important that we turn our minds to this matter and set out in our wills and power of attorney documents broad authority to our fiduciaries for dealing with our digital assets. It may also be helpful to keep an inventory of digital assets and to investigate which online account providers allow their users to designate a beneficiary on death, and, if appropriate, to make such designations.

Because the law has not yet caught up with the modern realities, when it comes to digital assets, staying ahead of the game is crucial.

-Birute Luksenaite

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