Recently we reviewed draft legislation for incorporating digital assets into estates law in North Carolina. In doing so, we questioned our working definition of digital assets, which created ambiguity between digital assets (the files) and digital accounts (access rights to files). The account/asset distinction is important, as it relates to requirements placed on service providers.

If you consider email, access to the account and copies of the emails (the assets) are two very different things. In the latter case, a service provider can be compelled to provide copies of emails (as in the case of Ellsworth and Yahoo).

Considering that email is the go-to identity mechanism on the Internet, it simply isn’t acceptable to provide the assets without providing access to the account:

• Looking to an example, executors commonly obtain access to the postal box of the decedent, for the purposes of conducting the estate. The Supreme Court has ruled that “E-mail is ‘comparable in principle to sending a first class letter . . .’.” (People v. Lipsitz, 1997). If an email is then equivalent to a letter, then the executor should have the ability to receive the email messages of the decent.
• Looking to practicality, an email address functions as a master-key to other online accounts (via password reset messages, etc.) and serves as an important index of most online activity.
• While it may seem inappropriate for an executor to send email on behalf of the decent, it’s not unreasonable that an auto-reply or manual notification be provided to email senders who may not be aware of the account owner’s passing.

This example shows the importance of considering access to the account differently than access to the assets. As such, we have expanded our working definition to include this distinction.

Digital Assets

The term “digital assets” means, but is not limited to, files, including but not limited to, emails, documents, images, audio, video, and similar digital files which currently exists or may exist as technology develops or such comparable items as technology develops, stored on digital devices, including, but not limited to, desktops, laptops, tablets, peripherals, storage devices, mobile telephones, smartphones, and any similar digital device which currently exists or may exist as technology develops or such comparable items as technology develops, regardless of the ownership of the physical device upon which the digital asset is stored.

Digital Accounts

The term “digital accounts” means, but is not limited to, email accounts, software licenses, social network accounts, social media accounts, file sharing accounts, financial management accounts, domain registration accounts, domain name service accounts, web hosting accounts, tax preparation service accounts, online stores, affiliate programs, other online accounts which currently exist or may exist as technology develops or such comparable items as technology develops.

The phrase “digital asset” is being used, but we have yet to come to a legally-accepted definition. A simple definition is that a digital asset is content owned by an individual that is stored in digital form. But this may not be broad enough to encompass all the digital elements of an estate that have value. An expanded definition includes online accounts.

So a more inclusive definition is that a digital asset is digitally stored content or an online account owned by an individual.

Digital content includes individual files such as images, photos, videos, and text files. It also includes other digital content (perhaps as data in a database). These assets are stored either on a device owned by an individual (“locally”), or on devices accessed via the Internet (“in the cloud”), often as part of a service offered by a third party and governed by a contact with the individual.

Some online accounts can be considered assets in and of themselves and have value to an estate. There are email accounts, social media profiles (such as YouTube or Flickr), social networking profiles (such as Facebook), and many others. These are also governed by a contact between the service provider and the individual.

What type of property is a digital asset?

The digital files themselves seem to be most easily classified as intangible, personal property, as long as they stay digital. They quickly become tangible personal property if they are printed or transformed into physical media (such as a printed photo).

Depending upon the law in your jurisdiction, this distinction between tangible and intangible assets may have significant implications on how clients grant executors access to these assets, what control the executor has over these assets, and over the probate process itself.

Problems with this definition.

While this might sound fairly straightforward, there are some problems with this definition.

Account or content?

We are suggesting that online accounts should be considered digital assets. But this begs the question, does an individual own the account or just the content stored and accessed using that account?

One might argue that the actual account at an Internet service (such as a Facebook account) can not be considered an asset and that only the content stored in that account (and accessed by means of that account) are the digital assets.

For example, there is the case of John Ellsworth. Mr. Ellsworth is the father and executor of deceased Marine, Justin Ellsworth. Yahoo denied Mr. Ellsworth’s request for access as an executor to his son’s Yahoo email account. The Probate Court of Oakland County, Michigan later ordered Yahoo to give over the contents of Justin’s email account to Mr. Ellsworth, but not access to the account. Yahoo argued that providing access to Mr. Ellsworth would violate the terms of service, as it states that the account is non-transferable.

While ownership of the content and not the account might make sense, online profiles often represent much more than a collection of content. Sometimes the account itself has monetary value. Sometimes the value is in the connections to other online accounts or the money making potential of an account. For this reason, we need to consider the account a digital asset and an asset of an estate.

Terms of service

A terms of service contract almost always exists between individuals and online account providers. It governs the account and nearly always defines a choice of law. The terms often specify who can access the account, transferability and sometimes what should happen after a individual’s death. Sometimes they define a period of inactivity beyond which the account is deactivated or deleted.

The problem is that these terms sometimes block the executor of an estate from accessing an account (as in the Ellsworth case) and therefore block access to the property of the deceased.

This issue of access to online accounts can be a significant problem for executors. In most cases, the content of an account clearly belongs to the deceased. But the executor will be unable to carry out the provisions of the will if they are denied access to the assets by the service provider.

Choice of law

Several states, such as Connecticut, Rhode Island, Idaho and Oklahoma have passed laws to grant the executor the right to access and control these accounts. But these laws may be in conflict with the terms of service and with the state defined in the choice of law. Many services define Santa Clara County, California as the place where disputes will be resolved. This creates a conflict that is yet to be resolved since California does not have any laws in place to explicitly grant executors access to a decedent’s account.

Things change fast

Our definition above is most inclusive of the range of valuable digital assets we have today. But we should remember that the technology changes fast and Internet enabled services are developing at an extremely fast pace. Right now we are seeing a huge movement to could-based services that will continue to challenge and stretch our definition of digital assets and there will be new challenges after that. This reminds us that our definitions should not be too limited. The laws of Connecticut and Rhode Island are already out of date due to their restrictive and overly specific wording.

Other articles on the topic:

Nathan J. Dosch & Joseph W. Boucher: Defining Digital Assets
Jim Lamm Rights Under Apple’s iTunes Terms and Conditions
Richard A. Magnone’s series on digital assets here and here.

The U.S. Treasury announced today that on January 1, 2012 it will end the sale of over-the-counter paper savings bonds. It’s all digital from there on out. This is the next step in the Treasury’s all-electronic initiative that will save the U.S. government $400 million dollars in the first five years. This comes after their May announcement that as of March 2013, all benefits, including social security, will be paid via direct deposit.

These are just two more illustrations of why planning for digital assets and accounts is essential. Without proper account information, user names, and passwords, heirs may be unaware of digital savings bonds and may experience more problems dealing with social security payments.

Now the the U.S. government has seen the improved efficiency and decreased costs that electronic records can provide, we can expect to see more movement towards electronic financial records in the future.

In the lead-up to SXSW this year, in preparing to participate on a panel called “Your Dead, Your Data Isn’t: What Happens Now”, my fellow panelists and I spent considerable time discussing a new law that is truly a first in the US. House bill 2800, recently enacted into law in the state of Oklahoma, authorized the Executor or Administrator of an estate to conduct or terminate the social media and certain other digital accounts of the deceased. The accounts are a key aspect of the digital identities of the deceased, and the provisions of this statute raise many questions of law, commercial practice and public policy. Continue reading →