Digital assets and ethical issues – good news from the Tennessee legislature

Last week the Chattanooga Estate Planning Council was kind enough to have me come to speak to them about ethical issues arising from the uncertain world of the law regarding digital assets.  They were gracious hosts and, to the extent there were important ethics issues to really discuss, we managed to cover that most, if not all, such isssues stemmed from the fact that it is incredibly difficult for those working in estate planning to try to accomplish client objectives as to digital assets in Tennessee because we lack legislation to address it.  For that reason, it seemed to me that the two most prominent ethical concerns for lawyers working in that arena are the duty of competence under RPC 1.1 and the duty under RPC 1.4(b) to communicate about what their clients need to know to make fully informed decisions about the representation.

What’s necessary to address the duty of competence is difficult to pare down beyond recognizing that you have to be as fully up to speed on what Tennessee law does, and does not, address to understand the uncertainty and about how federal law (including the Computer Fraud and Abuse Act and the Stored Communications Act) permits service providers to deny requests for access to online information after users and subscribers have passed away.

The most difficult part about the duty of communication under RPC 1.4 is figuring out how to warn a client that no matter how well thought out their estate plan might be on the subject of distribution of digital assets, the client could, by accepting online terms and conditions for use (or updated and revised terms and conditions of use), thwart the plan by ceding ownership of digital assets or authorize service providers or online entities to refuse to honor the contents of such plans.

This week the Tennessee legislature passed legislation so that the time period of such uncertainty now has an end date — July 1, 2016.  Effective at that time, Tennessee attorneys will be able to count on a version of the Revised Uniform Fiduciary Access to Digital Assets Act that solves many problems intrinsic to this area of the law.  You can access the version that will go into effect by downloading the PDFs from this post at the TBA Law Blog here.  It will be codified as Tenn. Code Ann.  35-51-101 et seq.  And if you are interested in seeing all of the areas where it differs from the Revised Uniform Act, you can see the full Revised Uniform Act here.

For those that don’t have the time (or the inclination) to go study the Tennessee Act, among the many important and helpful things it accomplishes, there are three I want to highlight.

First, the term “digital asset” will have a clear definition.

[A]n electronic record in which an individual has a right or interest.  ‘Digital asset’ does not include an underlying asset or liability unless the asset or liability is itself an electronic record.

Thus, for example, my URL and this blog should be recognized as a digital asset of mine under state law.  If you have gone green and only receive your bank statements in digital form, then those statements would be a digital asset even though the money in your bank account that they document would not.  If you’re invested in Bitcoin on the other hand, then the value of your holdings in Bitcoin would be digital assets under the Tennessee Act.

Second, the Tennessee Act generally establishes a hierarchy that puts something called an “online tool” at the top, estate planning documents next, and general terms of service agreements last when it comes to directions to online service providers/custodians about post-death disclosure of digital assets.  Section 5 of the Tennessee Act explains:

(a)  A user may use an online tool to direct the custodian to disclose or not to disclose some or all of the user’s digital assets, including the content of electronic communications.  If the online tool allows the user to modify or delete a direction at all times, a direction regarding disclosure using an online tool overrides a contrary direction by the user in a will, trust, power of attorney, or other dispositive or nominative instrument.

(b)  If a user has not used an online tool to give direction under subsection (a) or if the custodian has not provided an online tool, the user may allow or prohibit in a will, trust, power of attorney, or other dispositive or nominative instrument, disclosure to a fiduciary of some or all of the user’s digital assets, including the content of electronic communications sent or received by the user.

(c)  A user’s direction under subsection (a) or (b) overrides a contrary provision in a terms-of-service agreement that does not require the user to act affirmatively and distinctly from the user’s assent to the terms of service.

Online tool, is also a defined term under the Tennessee Act.  “An electronic service provided by a custodian that allows the user, in an agreement distinct from the terms-of-service agreement between the custodian and user, to provide directions for disclosure or nondisclosure of digital assets to a third person.”  I’m not sure, as a frequent user of the Internet, that I have encountered one of these items yet.

Third, while this legislation goes a long way toward reducing uncertainty for estate planning lawyers in Tennessee, it does not change the fact that lawyers will still have to have cogent discussions with their clients when the topic of providing for distribution of digital assets in their estate planning documents arises.  This is in no small part because blithe acceptance of online terms of service agreements will still have consequences in Tennessee as Section 6 of the Tennessee Act makes clear that the underlying rights of users are still going to be limited to whatever is created in a terms-of-service agreement in the first place.  Thus, there will still be lots of confusion on the part of clients who may think, for example, that they actually own and can leave behind that digital library of e-books they possess, yet the terms-of-service they may have agreed to without reading could indicate that they do not actually own any of those items but possess only a lifetime license to use.

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