Is Delaware’s New Digital Assets Inheritance Law Too Far Reaching?

The State of Delaware took another step in defining Bitcoin by passing a Bill that regulates what happens to a person’s digital assets after they die.

There might be a lot of contention about whether Bitcoin is money, a commodity or property. But there is no argument that Bitcoin has value, a question that has also been settled by a federal district court in New York and by a Federal magistrate in Texas. Bitcoin and other cryptocurrencies have value. This means that when a person passes away this value becomes part of their estate.

House Bill 345 is worded similarly to other Legislation regarding assets in probate and gives family’s permission to access the digital assets of their relatives as well as outlining the duties and responsibilities of the executor of the estate with regards to digital assets. While the wording of the Bill defines a wide range of digital property as “assets” under this legislation, its purpose was to help protect state residents who have virtual currency holdings at the time of their death.

The “Fiduciary Access to Digital Assets and Digital Accounts Act,” was designed similarly to the Uniform Fiduciary Access to Digital Assets Act (UFADAA), which was produced by the Uniform Law Commission. One official said recently in a statement:

"In the modern world, digital assets have largely replaced tangible ones. Documents are stored in electronic files rather than in file cabinets. Photographs are uploaded to websites rather than printed on paper. However, the laws governing fiduciary access to these digital assets are in need of an update" 

The Bill’s lead sponsor, Democratic State Congressman Daryl Scot said that legislators have failed in the past to keep abreast of new technologies and then have consequently fallen far behind.

Under the old law, if a person dies the representative of his estate would not have necessarily had access to even something simple as a Twitter account, which might contain valuable information, let alone exchanges and online wallets, State Governor Jack Markell said in an interview with Ars Technica. But the law only applies to people and assets that are governed by Delaware law. If the person’s assets are government by Montana or New York for instance, HB 345 would not apply.

Not everyone is happy about the new legislation, however. Jim Halpert, Director of the State Privacy and Security coalition said that privacy issues were never addressed when the Bill was considered and this means that anyone inheriting this property will not only have access to highly personal accounts, documents, photos and videos, which might be used later to posthumously destroy a person’s reputation. The legislation is, nonetheless, only a week old and many in the Bitcoin community might not be aware of it or its full possibilities.

Question to the community: Is this law using cryptocurrencies as an excuse to pry into digital records or is Bitcoin so different than any other valuable asset that it needs special regulations?

Update 8/27:

Because the law is often complex and probate issues can be a real nightmare we asked probate specialist Jonathan Alper, Esq to give us his legal opinion on this particular legislation. Mr. Alper is a graduate of both Northwestern and Harvard Universities.  His point is an excellent one

I see a practical problem with enforceability with respect to virtual currency (VC). The act provides for damages and attorney fees against Custodians of the VC if they do not provide fiduciaries with access and passwords. However, few VC Custodians are in the U.S. and very few would be within the state of Delaware.  The fiduciary seeking control of the VC or information could not get personal jurisdiction over the Custodian located outside Delaware. Therefore, a court could not order the VC Custodian to comply and DE courts would not have jurisdiction to enforce their orders with damages against the VC custodian.  The law works better for U.S companies that maintain a decedent’s electronic information because these companies are more easily subject to jurisdiction in De and other states, such as Google as to Gmail accounts etc. 

In a court of law, whether civil or criminal, a case cannot even begin unless proper jurisdiction is established and when multiple jurisdictions are involved the situation becomes very complex.

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