Estate Planning: Protecting Your Digital Assets

Many aspects of day-to-day life that once required the physical exchange of documents or money have now been replaced by online accounts, digital storage devices, e-readers, and social media accounts.

Accordingly, it is becoming more important to identify whether you have digital assets and to plan for how you would want to them to be dealt with after your death.

Introduction

In an increasingly digital world, it is becoming more common-place for our day-to-day lives to take place online. While most of us use these digital platforms, few people consider the value that can be attached to such digital assets and fail to make provision for these after they die.

Further, while many online providers will have their own policies about what happens to their content once the user dies, and rights to digital assets will vary from provider to provider, recording your wishes regarding your digital assets in your Will or other written statement may assist in the smooth administration of your estate when you pass away.

What are Digital Assets?

There is not yet a settled legal definition of “digital assets” in New Zealand, however generally speaking, a digital asset is understood to include anything owned in a virtual or electronic format rather than in a physical one.[1]  Further, while there is limited judicial and statutory guidance on the treatment of digital assets as property to date, those cases that do consider these points have provided important commentary on the classification of digital assets as property.

For example, in Henderson v Walker[2] Thomson J commented that “it seems obvious that digital assets should be afforded the protection of property law … especially now that digital media has assumed a ubiquitous role in modern life.”[3]

In Ruscoe v Cryptopia Limited (in Liquidation)[4] the High Court went further in its classification of digital assets, finding that cryptocurrencies are a form of property for the purposes of the definition of “property” under the Companies Act 1993 and “probably more generally”, and are accordingly capable of being held on trust.

In making this determination court considered National Provincial Bank Ltd v Ainsworth[5] a leading House of Lords case on the definition of a property interest, noting that a digital asset can be defined as “property” if:

• it is definable – for example, if a digital asset has a unique digital key or identifier;
• it is identifiable by third parties – in particular the court noted that the ability to exclude others from use of the asset (i.e by way of password protection) is sufficient to establish this requirement;
• it is capable of being assumed or acquired by a third party – the example used by the Court, cryptocurrency can be subject to an active trading market; and
• it has a degree of permanence or stability – the Court used tickets to a football match as an example, noting that while this is a semi-permanent form of asset (given once the game is over, the tickets no longer have any value) are undoubtedly property and can be transferred and exchanged.

Other examples of the treatment of digital assets as property in New Zealand can be found in the Family Court case of Beck v Wilkerson [2019] NZFC 9883 where it was held that cryptocurrency (in that case, Litecoin) can be treated as relationship property and is subject to, and divisible under, the provisions of the Property (Relationships) Act 1978. The Inland Revenue Department has also indicated that cryptocurrencies are property and subject to New Zealand’s taxation regime.[6]

Estate Planning for Digital Assets

Managing the digital assets of an estate poses unique practical and legal challenges, particularly as New Zealand does not yet have a specific legal framework for dealing with such situations.

However, until the law catches up with the new digital age, it has been proposed that digital assets for estate planning purposes be defined to include “the entirety of the electronically stored data of the deceased independent of whether the electronic data is stored on a local storage device, on the Internet, or in the Cloud, including hardware, software, online services, and associated contractual relationships”[7]

On the basis of this definition, are three broad categories of digital assets[8] that should be considered:

• Business Digital Assets with Monetary Value: these could include, for example, e-commerce accounts such as TradeMe, Ebay, and Etsy; digital data created by graphic or web designers, photographers, writers, musicians, and artists; websites/webhosting platforms; Youtube or Tik Tok accounts for a content creator; and domain names. It would also obviously include cryptocurrencies such as bitcoin or ether.
• Personal Digital Assets with Monetary Value: these include, for example cell phone apps , Online dating or gaming accounts, Online accounts for utilities, Online subscription-based accounts, Loyalty program benefits (i.e. Airpoints, Flybuys, etc.) and Youtube and Instagram accounts
• Personal Digital assets with Sentimental Value: these could include, for example, email accounts, social media accounts, photos and videos saved online, blogs and vlogs, and any other personal information stored on a computer, cell phone, or tablet.

In relation to any assets on a blockchain, such as bitcoin / ether and ordinals / non-fungible tokens, an entire industry has grown up around ensuring that these are accessible in the event of the death of the wallet holder.  Of course you can self-custody these assets but there are risks associated with this. Solutions such as Unchained and, closer to home, Everlasting,protect these digital assets through the use of multisig wallets, the custody of which is distributed among the testator, the service provider and an independent third party such as a lawyer or accountant.  Care needs to be taken when preparing a Will to ensure that the executor knows the multisig wallet exists and who the service provider is.  If your estate is likely to consist of any digital assets on the blockchain we strongly recommend you take legal advice to ensure these are safeguarded appropriately so that they can be available for distribution in accordance with your Will.

Conclusion

While the law is still catching up with the ever-changing developments in the digital assets space, we do anticipate that formal recognition of the property value in digital assets will soon be given much more weight in the Courts. On that basis we recommend that wishes relating to digital assets be recorded in a Will or other statement of guidance (possibly together with an access plan), so as to ensure smooth administration of these assets during the estate process.

[1] Henderson v Walker [2019] NZHC 2184

[2] [2019] NZHC 2184

[3] At [270]

[4] Ruscoe v Cryptopia Limited (in Liquidation) [2020] NZHC 728

[5] National Provincial Bank Ltd v Ainsworth [1965] AC 1175 (HL) at 1247–1248.

[6] “Cryptoassets” (28 April 2021) Inland Revenue Department <https://www.ird.govt.nz/cryptoassets>

[7] Gareth Abdinor and Bianca Mueller “Meaning of Digital Assets” in Cyber Law – What Happens To Your Bits & Bytes When You Die? (New Zealand Law Society Webinar, September 2015) 3.

[8] Gareth Abdinor and Bianca Mueller “Meaning of Digital Assets” in  Cyber Law – What Happens To Your Bits & Bytes When You Die? (New Zealand Law Society Webinar, September 2015) 3.

Want to know more?

If you have digital assets you want to deal with in your Will or have questions regarding asset planning for your digital assets contact Derek Roth-Biester or Rebekah Mapson. If you have general questions regarding Cryptocurrency or NFTs contact Derek Roth-Biester.

PDF version: here.