SQE student Olga Kyriakoudi explores the legal challenges of inheriting digital assets, from Bitcoin wallets to Instagram accounts left in wills. Digital inheritance is a rapidly evolving yet complex area of private client law. This article delves into how digital and decentralized assets are defined, the legal challenges of passing them on, and why thoughtful estate planning is more important than ever.
What are digital assets? With no universally agreed definition of digital assets, their classification varies across jurisdictions, leading to differing interpretations of what they represent. For instance, Canada treats them as commodities, while Mauritius classifies them as digital assets. In a rare alignment, both the USA and the UK recognize digital assets as property for tax purposes, though in the UK’s case, “recognition” might be a strong word. In a 2023 report, the Law Commission described them as a broad category of electronic resources, including crypto-tokens, digital files, email accounts, domain names, in-game assets, and other electronically stored records. However, academic literature provides a far more practical classification. Christo Meyer, in their article, identifies five distinct types of digital assets: 1. Personal or sentimental assets such as photos and videos, 2. Financial assets, including online stock or foreign exchange accounts, 3. Business assets, such as rights to online training content, video channels, or blogs, 4. Social media accounts, including platforms like Facebook, X, and LinkedIn, 5. Decentralised assets, such as cryptocurrencies, DeFi products, and tokens. Had the Law Commission focused on functional distinctions instead of pushing for a “third type of property,” a legal definition of digital assets might already exist. Grouping all digital assets under one category overlooks their varied uses and risks future legal complications. Decentralised assets include cryptocurrencies, Non-Fungible Tokens (NFTs), and similar technologies. Cryptocurrencies are digital currencies that are not issued by central banks, operating instead on blockchain networks (decentralised digital ledgers verified by a global network of computers). Bitcoin and Litecoin are among the earliest examples, used primarily as mediums of exchange. NFTs, by contrast, represent ownership of unique digital items such as art, music, or virtual goods. Unlike fungible cryptocurrencies, NFTs are one-of-a-kind and also exist on the blockchain. In private client law, both NFTs and cryptocurrencies are typically grouped under the term cryptoassets. Social media accounts, like Instagram or Facebook pages, often carry sentimental value, preserving memories and connections. However, it is important to note that with commercialisation of social media and the rise of social media influencers, such accounts can also carry a significant commercial value. Legal challenges in digital inheritance concern the transfer of digital assets after death.The recognition of cryptoassets as a distinct type of property has been a subject of legal debate. Currently, digital assets are governed by a mix of user agreements and discretionary platform policies, which can change without notice.
The Law Commission’s proposal to recognise cryptoassets as a “third type of property” has sparked academic debate. Professor Robert Stevens argues that cryptoassets do not constitute property under UK law, as they do not fit into the established categories of choses in possession or choses in action. Timothy Chan, on the other hand, argues they should be recognised as property due to their transactional functionality, similar to goodwill.
Despite ongoing debate, case law has affirmed that cryptoassets qualify as property, and HMRC treats them accordingly for tax purposes. Following a Law Commission consultation, the Property (Digital Assets Etc.) Bill was published. This Bill confirms that digital assets like crypto tokens can have property rights outside the two traditional categories, ensuring legal protection, including against theft.
However, the Bill does not specify which digital assets fall into this ‘third category’ of personal property; instead, it leaves this determination to the courts on a case-by-case basis. Additionally, the Bill confirms that a “thing” can attract property rights even if it is neither a thing in possession nor a thing in action, serving as a means of ‘unlocking’ the development of the common law.
Academic commentary raises key concerns about the Bill’s scope. Linus J. Hoffmann and Quentin B. Schäfer argue that the Bill is overly broad and risks increasing legal uncertainty. They criticise the Bill’s vague language, particularly the use of the term “thing” as it is likely to prompt inconsistent rulings and increased litigation. More broadly, they caution against extending property rights to digital content such as social media accounts, which they believe are better governed by contracts or regulation. Such “over-propertisation” could stifle innovation and fragment rights, leading to what they describe as the “tragedy of the anticommons.” They therefore recommend restricting the Bill’s scope to cryptoassets only.
Sharing a similar viewpoint, Dr. Michaela MacDonald sees the Bill as an underdeveloped and problematic reform. She argues it lacks clarity in defining digital assets and their relationship with existing legal frameworks, particularly intellectual property and contract law.
While this article echoes academic concerns, it also recognises the Bill’s view that a fixed definition may be problematic in the long term. However, it challenges the idea that the rapid pace of technological change justifies the complete absence of a definitional framework. The Bill seems to overlook the potential for a flexible, functional classification, such as one identifying five distinct types of digital assets.
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The legal approach to digital assets in estate planning could provide much-needed clarity while remaining adaptable to future developments. It would offer a clearer basis for determining which categories of digital assets may attract property rights, avoiding reliance on the vague term ‘thing.’
Trustees can manage cryptoassets as part of an investment portfolio, given their legal classification as property. Trust deeds should explicitly authorize this, with detailed instructions potentially included in a non-binding letter of wishes. Some providers, such as Fidelity Digital Assets, offer custodial services for managing and storing digital assets, catering to clients who prefer to outsource technical and security tasks. However, private trustees may provide greater flexibility and personalized oversight.
When it comes to managing social media accounts posthumously, most major platforms have established procedures. Facebook and Instagram facilitate memorialization or deletion, with legacy contacts able to handle limited tasks. Twitter, now known as X, does not offer a memorialization option but permits account closure with proof of death. To ensure that digital wishes are respected, individuals are advised to include their preferences in a letter of wishes and reference a secure document containing access details. It is crucial to review each platform’s post-death policies, with a summary of the major ones available here. Lindsay Herbert, in ‘Digital Transformation’, posits that digital transformation is not merely about adapting to new technology but about steering an organization to be more adaptable to change. For lawmakers, this implies moving from a reactive to a proactive stance, crafting legal frameworks that assist professionals in navigating change rather than merely chasing it. For private client practitioners, digital assets are no longer peripheral; they are integral to identity and wealth. With legislation lagging behind emerging technologies, these professionals are tasked with bridging the gap between legal uncertainty and modern realities. It is hoped that the law will soon evolve to support them. Olga Kyriakoudi is an SQE LLM student at BPP University and a first-year trainee solicitor. The Legal Cheek Journal is sponsored by LPC Law.
