Kentucky Enters the 21st Century With a Digital Assets Law

Written by Jim Worthington on May 17, 2020

Serving as someone’s agent under a power of attorney, personal representative of their estate, or even trustee—all of whom are fiduciaries— means taking charge of all their property. That includes bank accounts, investment accounts, retirement accounts, and residences. Whether these fiduciaries knew it or not, that property has also included digital assets for some time. Digital assets include email accounts, social media accounts, text messages, voice mails, photos, and other intangibles that are stored electronically. 

So far, the authority to manage digital assets has been unclear at best. However, starting July 15, 2020, Kentucky law provides rules for how fiduciaries should manage digital assets. House Bill 156 adopts the Uniform Law Commission’s Revised Uniform Fiduciary Access to Digital Assets Act (linked here for readers who want to study it). The ULC published the model law in 2015, and it will become Chapter 395A of the Kentucky Revised Statutes this summer.

Before discussing the law itself, let’s look behind the scenes at what it took for HB 156 to be enacted. That background will be helpful when we see how the new law protects personal privacy while balancing the interests of technology providers and the needs of fiduciaries.

Never Watch the Making of Law or Sausage

As a reminder, the ULC drafts model legislation and promotes its enactment in state legislatures. It’s a way to make the law uniform in areas that the U.S. Congress can’t or won’t pursue. The new digital assets law has an interesting back story: the original, unrevised act (completed in 2014) gained very little traction in the state legislatures. In fact, only one state ratified the original version. It’s ironic that the revised act doesn’t really revise anything; rather, it reflects the effort it took for states, including Kentucky, to finally enact the proposed legislation.

One of my early mentors wisely said that politics is the art of giving public reasons for private purposes. In this case, several big tech companies quietly opposed the original act. In the closed-door dispute, the public reason for the opposition was concern about personal privacy, but the private purpose was to protect enforcement of the terms of providers’ service agreements instead of  providers having to comply with laws that varied from state to state. That’s understandable, given that states frequently tinker with the language of uniform laws before enacting them. The revised act incorporates the privacy concerns and strikes a nice balance between private agreements and state laws.

The Final Product: Kentucky Law about Fiduciary Access

The back story is reflected in the new law in two primary ways. First, it addresses the concerns of technology providers (referred to as custodians) about complying with varying state laws by deferring to their own online tool, which supersedes any legal instrument. While some providers were already relying on online tools (i.e., agreements with the end user), the new law expressly allows that practice but requires the agreement to meet two criteria. 

  1. 1. The user must be able to “modify or delete a direction at all times.”
  2. 2. The online tool must be separate from a terms-of-service agreement that does not require an “affirmative and distinct” action from assent to the terms of service. (In other words, simply clicking “accept” to an end-user license agreement laden with legalese is not an agreement to an online tool.)

Second, the law incorporates the privacy concern by requiring that a legal instrument (will, power of attorney, or trust) contain express language to allow a fiduciary to have access to the content of a person’s digital assets. A general power to access the digital assets will no longer allow access to content. Moreover, either an online tool or a legal instrument can be even more restrictive than restricting access to content; either can go as far as prohibiting any access to digital assets. 

Practice Pointers

Most of us likely have messages and social media posts we may not want just anyone to see. So now we have a new set of questions to explore with clients: 

  • Once you can’t use an account yourself, who do you want to be able to access your email, texts, and social media content? 
  • Or do you want all access to just go away upon your disability or death? 
  • Have you reviewed your online accounts for an online tool provided by the custodian? 
  • If so, do you need help understanding or completing it? 
  • Let’s also cover digital assets in your estate plan. You might want to name fiduciaries for accounts without an online tool. 

Also remember the requirement that a legal instrument must now expressly allow access to the content of digital assets. Consider modifying your standard will, power of attorney, and trust language to express the client’s preference about content access. 

Privacy Goal Lost in the Details

The legislature essentially followed this practice pointer by including a statutory form power of attorney in House Bill 154. I discussed HB 154 and the new statutory power of attorney form in this previous article. That statutory form sort of, kind of protects privacy. It includes language that could give the agent the authority to access the content of electronic communications. Because it’s treated as a superpower, the principal must check or initial that power to grant it to the agent; it can’t be granted by checking an “any of the above” box. So far so good. However, the statutory form doesn’t explain that the principal could just give access to a summary of the account without giving access to the actual content. Checking the box and giving access to content is all or nothing in the statutory form.

It’s likely that our clients will simply print that form, check all of the boxes, and—if they consult a lawyer at all—ask us to tell them it all looks good. One of the ways we can add value is to ask them if they really intended access to the content of their digital assets.

We see a discrepancy—likely unintended—when we consider these two laws passed in the same legislative session. The digital assets law protects people’s privacy by making them give access to content of digital assets in a considered way. But the statutory form power of attorney in HB 154 is worded in such a way that many users will grant that access to content without being guided to think about it deeply. The results of these two new laws working in tandem remain to be seen. 

Despite the number of lawyers in the legislature, it just doesn’t look like anyone focused on the interaction of two laws covering the same subject. That’s understandable because the General Assembly was in a rush to adjourn as the coronavirus spread, but it is nonetheless regrettable. 

Law for the 21st Century

Mark Twain supposedly said he wanted to be in Kentucky when the world ends because everything happens here 20 years later. As with many quotes attributed to Twain, he likely never said that. Regardless, there is more than a grain of truth in it, as a law about 21st century assets arrives in Kentucky 20 years into the century. However belated, trusts and estates professionals will need to incorporate the new digital assets law when counseling their clients and drafting documents.