News archive

Rumbelow & Rumbelow v Revenue & Customs [2013] UKFTT 637 (TC)

In the first case Mr and Mrs Rumbelow left the UK to set up home in Belgium, as a prelude to semi-retirement and with a view to becoming non-resident in order to shelter their UK property from Capital Gains Tax (CGT).   The issue was whether in the tax years in question they remained resident in the UK and were therefore subject to UK CGT.  Mr and Mrs Rumbelow lost because of the ties they retained with the UK.  This tribunal used evidence of cash withdrawals, debit card purchases and records of their business transactions to track their movements during this time.  These showed that their visits to the UK were more frequent and extensive than they had described.  They also kept a taxed and insured car at their fully furnished Cheshire property where they stayed on their UK visits.  The Rumbelows lack of detailed records also hindered their attempts at showing they were non-UK resident during the years in question. The full decision can be found here.

Gibson v Revenue & Customs [2013] UKFTT 636 (TC)

In the second case Mr Gibson demolished his home and built a new house on the site.  HMRC denied principal private residence relief on its disposal.  Even though Mr Gibson had been “camping” for several months in his new house while the building works were going on the Tax Tribunal ruled that this did not amount to residence.  The full decision can be found here.

“Turnaround Time for Annual Reviews

There is currently a 14 week waiting period for annual accounts to be reviewed. We apologise for any inconvenience the delay may cause financial guardians.

The Annual Review Team are currently working with accounts received on and around 12th August 2013. Financial guardians who have queries regarding their accounts or the waiting time may contact opgreviewteam@scotcourts.gov.uk

Power of Attorney (PoA) Update – Manual Submissions

There is currently a 12 week waiting period before your PoA can be processed and returned to you. This week we will be working on PoAs received on and around 22nd August 2013.

If there is a genuine urgency, we will expedite the registration of a PoA ‘on cause shown’. We ask that people respect this service and only use it in cases of true urgency to avoid defeating its purpose.”

More on this can be found here.

Decision of the Lands Valuation Appeal Court in which a number of ratepayers appealed against the values entered in the roll at the time of the 2005 Revaluation and for their retail premises in Sauchiehall Street in Glasgow. Following the appeal, the Glasgow Valuation Appeal Committee found that a combination of events consisting of the opening of out of town shopping centres, the economic downturn, the withdrawal from the market place of various traders and the expansion and improvement of the St Enoch Centre brought about a material change of circumstances[1] affecting rental values in virtually all retail premises within the principal trading sections of Sauchiehall Street. As such, the values were reduced by 30%.

The Assessor appealed and the Lands Valuation Appeal Court found that only the economic crisis constituted a relevant material change of circumstances and returned the case to the Appeal Committee. After hearing expert evidence from both sides as to how much of the reduction was due to the economic crisis, the Committee allowed the appeals and found that the valuations should be reduced by 6.66%[2]. The ratepayers argued that the reduction should have been the full 30% and requested that the Committee state a case for the Appeal Court. The Assessor cross appealed arguing that there should be no reduction at all.

Before the Appeal Court the ratepayers argued that the court should:

1. resile from its previous decision in this case and decide instead that any change in rental value in an intermediate year, whatever the cause, was per se a material change of circumstances, except where it was trivial;
2. restore the original decision of the Committee (and reduce the values by 30%).

The Appeal Court rejected those arguments and refused the appeal (and cross appeal). The court was satisfied its previous decision was sound in law. It noted that, while a material change of circumstances may now[3] consist of a fall in rental value, not every fall in rental value constitutes a material change of circumstances. If that were the case the whole system of quinquennial revaluation would be undermined:

 “The system of quinquennial revaluation is based on the principle that subjects entered in the roll at a revaluation will remain at the same value until the next revaluation, unless a material change of circumstances occurs in the interim. In reality, the rental values of commercial subjects of all kinds may fluctuate constantly throughout the quinquennium. The submission for the appellants, if sound, would apply to all lands and heritages that are entered in the roll. If every downward fluctuation, whatever the cause, constituted a material change of circumstances, the whole basis of quinquennial revaluation would be undermined. The quinquennium would consist of an endless series of material change appeals relating to all kinds of lands and heritages.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Case from the Lands Tribunal for Scotland in which Ms Rivendale sought to appeal the Keeper’s refusal to rectify the Land Register in her favour.

Background
Ms Rivendale purchased a cottage in Tarbert, Argyll in 2010 but was unable to register title to an area of ground in front of the cottage as it was included in her neighbour’s title. The tribunal found that Ms Rivendale was the “true owner” of part of the area of ground and that the register was inaccurate in that respect. However, in terms of s9(3) of the Land Registration (Scotland) Act 1979, the register cannot be rectified[1] where rectification would result in prejudice to a proprietor in possession. Ms Rivendale’s neighbour, who had used the disputed area (on part of which there was a track) to access two building plots and other land owned by her, argued that she was a proprietor in possession and would suffer prejudice if the register were rectified.

Reasoning
When considering the issue, the tribunal took the view that, in this case, it was not sufficient simply to decide whether or not the neighbour was in possession of that area as a whole. Rather, because there were two different characters of use of the area in question (Ms Rivendale used the area as garden ground and her neighbour used it as an access track), the matter became a question of finding where one use ended and the other began.

Decision
As such, the tribunal found that the neighbour was the proprietor in possession of part of the property on which there was a track but not a part which was grassed nor a part on which there were flower beds. As a consequence, Ms Rivendale was entitled to rectification of the register in respect of the part of the disputed area which extended to the edge of the track but not to the part on which the track was situated.

The full decision is available from the Lands Tribunal for Scotland here.

(See appeal to the Inner House below)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

I am concentrating on one matter in this “tax land” and that is the publication by the Scottish Government of its latest independence paper: “Principles for a Modern and Efficient Tax System in an Independent Scotland”.  The paper can be found here.  I prefer my title for this paper found above.  

It is a good paper and makes a number of sensible suggestions.  If you do not have time to read the whole paper I would recommend you take the opportunity to read the “Executive Summary” and also the “Summary of Recommendations”.

For ease of reference I have copied part of the “Executive Summary” below as well as adding a number of comments.

“Under the current constitutional framework, the Scottish Parliament is responsible for around 7% of all taxes raised in Scotland (including a geographical share of oil). This will rise to 15% with the introduction of new responsibilities flowing from the Scotland Act 2012.”

This is a point that the ‘YES’ campaign needs to keep repeating.  The ‘NO’ parties often claim that a substantial amount of power is being devolved under the Scotland Act 2012.  This is clearly nonsense.  Only two minor taxes are being devolved and the Scottish Parliament’s control over income tax will only increase slightly.  This only gives the Scottish Parliament control of four minor taxes and partial control of income tax.  This hardly gives the Scottish Parliament substantial tax powers when you consider there are approximately 25 taxes, charges and duties.  Finally on this point.  Do not forget that Calman began its work in 2007 but the powers are not being devolved until 2015 and 2016.

“Independence would provide full control of all taxation and expenditure levers in Scotland with autonomy over tax design, collection and implementation. The requirement to establish a new tax system post-independence provides an opportunity to re-examine the tax framework as a whole and to design a system based upon specific Scottish circumstances, preferences and principles but also with modern technology and data collection in mind.”  

This is very important.  One of the most disappointing aspects of the ‘NO’ parties involvement in the fiscal powers debate has been their complete lack of interest in devolving control of those tax powers that would complement the powers already held by the Scottish Parliament.  This would have given the Scottish Parliament a substantial number of economic levers and also the chance to develop policy in a more effective way.  For example, health is devolved but alcohol and tobacco duties are not.

In addition VAT can only come under the control of the Scottish Parliament if Scotland votes ‘YES’.

The debate surrounding a new Scottish tax system should also include whether any taxes should be abolished.  For example, air passenger duty and stamp duty on shares. I also look forward to seeing in more detail how we might improve how our taxes are collected and also how tax advice and assistance is provided.  I have long argued that we need to create local advice offices. These could be located in each local authority area. Scotland also does not need a separate Stamp Office, Registers of Scotland and Companies House. “Specific Scottish circumstances, preferences and principles” should also include taking into consideration Scots law.

“A re-designed Scottish tax system could represent a major competitive advantage, offering a more robust and efficient tax system than key competitors.  A number of objectives will need to be considered –     

o Designing a modern and efficient system

o Delivering an effective macroeconomic framework

o Promoting competitiveness, economic growth and tackling inequalities

o Implementing and managing the transition to full autonomy

o The European and international context”

“A tax system which follows the principles of simplicity, neutrality, stability and flexibility, will minimise administration and compliance costs, maximise tax-take and boost investment and growth.”

There is no doubt a “re-designed Scottish tax system could represent a major competitive advantage. Control of a few minor taxes and partial control of one major tax is all very well but does not give the Scottish Parliament the economic tools it so clearly needs.  Taxes are not looked at in isolation by individuals and businesses alike. The underlying law is also crucial in this regard.  The power to only vary a tax rate is in effect almost no power at all.

The fact that this point is so self-evident is I suspect one of the major reasons why the devolving of substantial tax powers is so fiercely resisted by Westminster and in particular HMRC and HM Treasury.

 “To follow these principles, a balance will be required between the different broad methods of taxation – income, expenditure and wealth taxes – and how, within these taxes, individual elements are structured and developed.”

This debate needs to include looking at where and in what proportion taxes are applied. For example between individuals and businesses.  The recent spat between the energy companies and the UK Government is an example of how this should not be done. In addition it should also be made clear if a tax is primarily a means to raise revenue or to change behaviour, or even a mixture of the two.

“As the report makes clear, the tax system – in conjunction with other policies such as welfare and general public service provision – can be used to shape outcomes that reflect the socio-economic vision of a country. It also plays a crucial role in any macroeconomic framework.”

That is a crucial point.  The new Scottish tax system needs to be developed alongside a new Scottish welfare system.  That includes how we provide advice in both of these areas. This is an area where a new Scottish system can improve hugely on the present system.

 “Transition to a new tax system will take time. The UK tax system is complex and costly, and studies have shown there is considerable room for improvement in its design and operation. It is vital that such a transition is handled smoothly. The Scottish Government should develop a clear plan for how it will migrate, over time, towards the development of its own modern Scottish specific tax system.” 

I have long argued that the Scottish Government should clearly state that they will retain the majority of the present tax system for a number of years. This will ensure a degree of certainty and stability during which time the debate can begin as to how we will create a Scottish tax system and also how it will look. It may be that the Scottish Government wishes to make a small number of immediate changes on Scotland gaining independence such as to a particular tax rate or abolishing stamp duty on shares.  That is only to be expected.

The most enjoyable aspect of reading this paper was for me the fact that the debate about what a Scottish tax system might actually look like has started.  There shall be a Scottish tax system.

Case from the Lands Tribunal for Scotland in which Lundin homes appealed against the Keeper’s decision to exclude indemnity from their title to a development site.

Background
The site had been part of a larger development and had been intended as a detention pond for surface drainage run off but was not required for that purpose. Lundin bought the site from the receiver of the original developer. However, the Keeper excluded indemnity from Lundin’s title on the basis that the site could have been conveyed to the proprietors of the houses in the larger development as part of the common parts.

In the case of PMP Plus Ltd v The Keeper of the Registers of Scotland and others[1] it was established that it is not possible to create rights in common areas where the identification of those areas is dependent on a future uncertain event; for example, where a developer dispones properties (before the development has been completed) with a right of common property in the areas of the development which will be left over after the houses have been erected[2].

Keeper’s Argument
The Keeper argued that this case differed from PMP in that the development had been completed and the owner of the last of the houses in the larger development could have obtained title to the common areas (including Lundin’s site) as, at the time the last property was conveyed, the common areas became identified and were no longer uncertain.  On this reasoning, the Keeper argued, subsequent re-sales of the houses (after the common areas became identified by the sale of the last house in the development) would also carry a share of the common parts. The “Midas effect” effect (under which an entry on the register cannot be void, meaning that, if a title is registered, and so long as the subjects can be identified[3], that title becomes the actual title even if that does not represent the correct legal position) was important to the Keeper’s argument.

Decision
The tribunal rejected this argument finding that the common parts had not been sufficiently identified in the title to the last of the houses and noted the difficulty in determining with certainty when a development has been completed[4]. The title to the last of the houses did not show or attempt to describe the extent of the common parts or all of the boundaries of the other properties. The development title which had been marked up with progressive titles by the keeper did show all of the boundaries and common parts but it had been “closed” meaning that it was not public and could only be searched internally by Registers’ staff.

The tribunal found that reference to extraneous material, (with the possible exception of other publicly accessible registered titles) in order to establish completion and identify common parts is incompetent. As such, the owner of the last house to be sold in the larger development had no right to the Lundin site (or indeed the rest of the intended common areas within the development) and the Keeper had not been entitled to exclude indemnity when registering Lundin’s title.

It was also noted that re-sales of the houses did not include a right to the common areas as, even with the assistance of the “Midas” effect, the conveyance only disponed what was contained in the title sheets and the titles in the re-sales suffered from the same lack of description as the first purchases.

The full decision is available from the Lands Tribunal for Scotland here.

(See also Miller Homes Limited v The Keeper of the Registers of Scotland, LTS/LR/2013/06).

A blog on Registers of Scotland’s policy with regard to development common areas is available here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

The Inheritance Tax Manual has now been updated.  All the changes relate to the Finance Act 2013.  The updates can be found here.

HMRC has also published updated forms IHT400, IHT419 and IHT400 notes.  The forms and guidance notes have also been updated because of the Finance Act 2013.  The new forms and notes can be found here.

Case from the Lands Tribunal for Scotland in which Mr and Mrs Franklin sought variation or discharge of a title condition preventing them from building a two-storey extension at their house in Dalgety Bay. Mr Lawson was a neighbour who objected to the extension on the basis that it would interfere with his view and take sunlight from his garden.

A condition in a prior feu disposition prevented alterations to the house without the consent of the superior. This condition was supplemented by another condition which allowed the feuars to enforce the conditions of their feu dispositions against each other but only with the superior’s consent. There was also a further clause giving the superiors the right to waive or vary all conditions.

The question arose as to Mr Lawson’s right to enforce the burden. In terms of section 52 of the Title Conditions (Scotland) Act 2003, following feudal abolition and removal of the superior, burdens created under a common scheme can be enforced by the proprietor of any property within the common scheme. However there must also be nothing in the title of the burdened property indicating that there are no third party rights of enforcement. Usually, the superior’s right to vary or waive the real burdens will indicate that there are no third party rights of enforcement. That was the situation in this case and, although there was also a positive power allowing the co-feuars to enforce the conditions, the tribunal found that (due to requirement for superior’s consent) the effect of the provision was simply to reinforce the proposition that the ultimate right of enforcement rested with the superior not the co-feuars. Thus Mr Lawson could not enforce the burden under s52.

However, the tribunal found that Mr Lawson had a right to enforce the burden under s53 of the 2003 Act under which properties within a group of related properties can enforce burdens imposed under a common scheme against other properties within the group. (There is no requirement that there be nothing indicating that there are no third party rights of enforcement under s53).

In terms of s8 of the 2003 Act a person can only enforce a real burden if they have an interest to enforce it. In order to have an interest to enforce it, a breach of the burden must result in “material detriment” to the value or enjoyment of the enforcer’s property. There was some discussion as to Mr Lawson’s interest to enforce. However the Tribunal took the view he did have an interest to enforce and said the following with regard to the meaning of “material detriment”:

“It is enough to say that we are satisfied that [Mr Lawson] does have an interest to enforce. As will appear from the discussion below, we have no doubt that the extension would have a material adverse impact on the respondent’s enjoyment of his property within the meaning of sec 8. In that context we see no reason to exclude the special attraction the view has for the respondent himself as an aspect of enjoyment of the property but, in any event, where there is an identifiable element of detriment which cannot be disregarded as insignificant or of no consequence, it seems to us that the test of materiality can be met. We think this is in accord with the substantive views expressed by the Sheriff Principal in Barker v Lewis at [27]. We do note that at para [24] he described “material” as an adjective of degree. However, this may be misleading. It can properly be seen to have a primary meaning as simply the opposite of “immaterial”. Determination of what is “material” does involve assessment of matters of degree but what is required is a decision as to whether or not the subject matter is “material”. The term is not primarily an adjective expressing quantity.”

After hearing the evidence, the Tribunal agreed to vary the title condition to the extent necessary to permit the Franklin’s proposed extension. No compensation was awarded to Mr Lawson. Although the Tribunal accepted that variation of the condition would result in a degree of loss to him, it noted that compensation could only be awarded for “substantial loss” and it could not find sufficient material to justify making any award.

The full decision is available from the Lands Tribunal for Scotland here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

For those interested in American estate and inheritance taxes this blog from the Wall Street Journal gives an excellent summary of the position in each state.

“Nineteen states and the District of Columbia, home to just over one-third of the U.S. population, levy an estate tax on the assets of people who die or an inheritance tax on heirs receiving assets. Maryland and New Jersey have both, although each allows offsets to prevent double taxation.”

The blog can be found here.

This is the talk I gave to the Law Society of Scotland private client update seminar in Stirling earlier today.  If you would like a copy of the slides please email me.  

Thank you Bill for that introduction.  Good morning everyone.

I was in fact a trainee in Bill’s old firm.  I begin my traineeship in 1993.  Thinking back, the world, and of course the legal world, was a lot different.  I had a computer on my desk although calling it a computer might be stretching things.  No email.  The day’s mail was delivered to your desk.  No mobile phone and certainly no BlackBerry. No social media and a lot less hassle from marketing people.  Happy days.

So to this morning’s talk.  Why you need to know about digital assets.

I have a lot to cover in about 45 minutes.  There will though be some time for questions at the end.  A copy of my talk will also be sent to all delegates.

So what will I cover this morning?

SLIDE 2

I will start with some background and in particular the growing importance of digital assets to our and our clients personal and working lives.

I will then look at some of the issues associated with digital assets.

Next I will look at how different providers of digital assets and in particular social media providers deal with these issues.

I will also outline some practical guidance when dealing with digital assets.

Lastly, I will provide a few thoughts on the future.  Always a dangerous thing to do but nonetheless good fun.

As a matter of interest, and just by a show of hands, how many of you are already dealing with digital asset issues?

For example:  have any of you had trouble finding an online bank account, or tried to close down a LinkedIn account or memorialize a Facebook page?

I would like to start with a general point.  Digital assets may be a relatively new phenomenon but in my opinion do not present us with completely new issues but rather old issues repackaged.

Although often talked about negatively, there are a huge number of positive aspects to the digital world we now live in.  Many of which are obvious.  The negative aspects are also sadly familiar to us.  Whether it be fraud or bullying.

Now for some background.

SLIDE 3

There is no doubt of the growing importance of digital assets to us and our clients in both our personal and working lives.

For example.  How did you find out about this event?  How did you book your place here?  How did you pay for it? Will you be tweeting about it?  Will you blog about it? Will you take the chance to catch up with friends by text or email or update your Facebook page whilst listening to today’s talks?

So what are digital assets?

Digital assets broadly fall into two categories:

• Personal and sentimental items
• Financial information and assets

 There is a though a lot of overlap.

SLIDE 4

For the first category, in an earlier age we would have kept these items in a more solid form.  Our letters, photographs, diaries and videos have been replaced by their virtual equivalents.  Even those items which were created in a more solid form are now often put into a digital format.

The slide shows just a few examples.  The list is potentially endless as more and more are created.  We are not just talking about Scottish, UK or US sites but sites from almost every country in the world.

To be clear, it is the content that we are primarily interested in and not the fact that our clients may have used certain online accounts. It is this content created that our clients are likely to want to pass on to their family members and friends.  The involvement of a third party provider such as Twitter is the complicating factor here.  I will come back to this point.

The second category were also once held in another form.

SLIDE 5

Whether it is banking, savings accounts, online investment portfolios and share trading accounts, online shopping or betting and gaming accounts, most of us have an online financial presence in one form or another.

Most tax returns are now filed online. It is rare to be involved in an executry where there is not an online bank account.

Then there are our email accounts, work and personal.  A great deal of personal information may be contained within these emails and also the attached files.

As someone who grew up in the Borders in the 1970’s and 80’s I see what once was regarded as science fiction is now the norm.

I have a twitter account, a LinkedIn account and I blog.  Most of my banking, work and personal, is done online. I have two email accounts.  I use Skype for business meetings and for catching up with family and friends.  This is I suspect the same for many of you here today.

I can also remember saying I would never use many of these accounts.   I said exactly that to my business partner when he set up a Twitter account for me.  And now almost 3,000 tweets later!

The average person it is claimed now has more than 10 online accounts, including social media, shopping and bank accounts.  These obviously contain a great deal of personal information and have value whether it is financial or sentimental.

It is thought that 2 or 3 billion people now have some form of online presence.  That clearly must effect what we need to do as private client lawyers.

As I have already said, the importance of these assets to the way we live our lives and also how we work is obvious.  Can we imagine no emails, online banking or Facebook?

For example my own firm.  I do not think we would have set up Legal Knowledge Scotland in the pre-digital age.  Digital assets are hugely important to my own firm.  We sell a large number of styles online.  The client accesses them online and pays for them online.

Already I suspect some of the issues that we need to address are becoming obvious.

SLIDE 6

So what are these issues?

Let’s start with awareness.  Do our clients even know they have digital assets?  Even if they are aware it may not matter to them.  Might it only matter to them once the issues are explained to them? Let’s not forgot that relatively few people in Scotland have Wills.

Even if your client has some awareness, is it likely that they will have considered how their executor will know which digital assets they have?  If everything is done online and possibly by email there might not be a paper trail for an executor or family member to follow.

Do we know what happens to social media accounts and the associated content when someone dies or becomes incapacitated?

Are they always closed down?  No.

Can the content always be recovered? No.

A great deal of content cannot be recovered and even if it could have been a deadline may have been missed.

How many people actually know that they don’t own the music in their iTunes account or the books in their Kindle collection?  They only have a lifetime licence. The small print specifies that these rights terminate on death and are not transferable even if accessed on a device owned by someone else.  This could come as a shock to a user who has spent a considerable amount of time and money building up their music or book collection.  You may remember Bruce Willis being mentioned in this context.  Sadly that story seems to have been misreported.

Is your client aware of how he might protect his digital content?  I will come back to this point.

The fact that our working and personal lives seem to merge more and more raises another issue.

Where does one use end and the other begin?  I suspect many of you have a work email account and also possibly a work twitter account.  What about your LinkedIn account? Is that your account or your firm’s?

What happens if you die or become incapacitated or even move jobs?  Even though these are likely to be primarily work accounts they may also contain personal information and content.

Then there is privacy.  Are there things that our clients would prefer not to be widely known even on death?  Yes there often are.  This is also not a new issue.

A former colleague recently told me about a matter she had to deal with.  She was working on an executry and the deceased was married at the time of his death.  She came across evidence that he was using an online dating account.

She decided to use some discretion and did not make an issue of this as she did not see this account as an asset nor was any money owed or due.

Do you think she should also have contacted the provider and asked that the profile be removed from the site?  I will leave you to think about that.

What about this situation?

A friend told me recently that he had seen the profile of a colleague on an online business networking site. This person had died several years before, but the profile was still there unaltered. Presumably, the deceased’s family was unaware of the site or had been unable to remove it.

I do not know if this was something the executor tried to deal with or simply that it did not occur to anyone.  The point is that my friend found this upsetting.  This could also potentially cause distress for family members.   Again something to think about.

Similar issues might arise if you come across online gaming accounts or pornography accounts.  As I have said, these are not new issues for solicitors and executors to deal with.

This is not about us making judgements as to what is and what is not appropriate.  This is about us finding out what our clients want us to do with their online accounts on death.  Without instructions this makes the task much more difficult.

The information we come across may also not just effect the deceased’s reputation.  As I mentioned at the beginning of this talk there are many negative aspects of the digital world.  Information in the wrong hands can lead to fraud, identity theft, blackmail and cyber bullying.  That is another reason why it will be important for many of our clients to think about this issue.

Our clients may also have virtual pets, virtual farms, virtual relationships or virtual games characters.

Two examples.  “Second Life” players adopt a new identity and can move around, work and socialise in a computer generated environment.

“Virtual Farm” is a farm and time management game. You choose your crops, till your ground, water your fields, harvest your plants and sell your goods.

You come across so many amazing stories when you research these type of virtual assets.  I will only mention one this morning.

You may remember reading about a jilted Japanese woman being arrested for “murdering” an avatar in an online role-playing game after it divorced her character.  She was charged with illegal access onto a computer and manipulating electronic data.  As I said, what was once science fiction.

What if anything can be done with these particular type of virtual assets on death?  The terms and conditions of use are obviously very important.  That said, the law as yet does not have a complete answer to that question.  These assets do though have value, and if something is valued – whether financially or sentimentally – people will want to pass them on to their family and friends.

With all this in mind, would an executor even know where to start?  When I say executor I also mean a solicitor acting for an executor.

SLIDE 7

Let’s remind ourselves what executors are generally expected to do?

• Collect in the assets of the estate and pay the liabilities of the deceased
• Deal with HMRC and settle any tax liability
• Distribute the estate in accordance with the terms of the Will or the rules on intestacy

We all know that an executor goes beyond what I have just said as they also administer the estate and deal with numerous other matters.

 An executor will of course need to deal with the deceased’s digital financial accounts and is likely to be used to doing so.

Financial institutions will typically require sight of a death certificate plus Confirmation before releasing the funds.  They will also usually require proof of an executor’s identity.  This also applies to newer types of financial accounts such as eBay or PayPal.

What though of the deceased’s social media accounts?

How much time and effort should an executor put in to tracing the deceased’s social media accounts?  Should any effort at all be made to trace these accounts?

Remember much of the content may not be retrievable and cannot therefore be passed on.  Also many accounts are simply closed after a certain period of non-use.  Some common sense needs to be applied.

It may be that one particular family member wishes to deal with the deceased’s social media accounts.  That said, an executor must be kept informed of what they are doing.

In any case it may be that an executor only finds out about these accounts from a family member or friend.

That begs the question.  Should an executor as a matter of course google the deceased’s name and see what comes up?  HR people already do this.

The deceased will also have agreed to certain “terms” for using each account.  Also remember that these terms keep changing and each provider’s terms are different.

What about when the executor knows about these accounts?  What if the executor also knows the deceased’s passwords?

As we know executors do not automatically have access to and control of the deceased’s assets on death.  There is a process that needs to be followed.

Is there a temptation to access these accounts if you have the password?  Of course there is.  There may be a concern that content could be lost.  That said the terms of use should not be ignored and in almost all cases the provider should be contacted before accessing the account.

To be clear, an executor accessing an online account using the deceased’s username and password could be committing a criminal offence of “unauthorised access” under the Computer Misuse Act 1990.

I am sure most executors do not want to be involved in a dispute as to whether they had permission to access an online account.

SLIDE 8

For example these are Facebook’s terms:

• 1.You will not share your password (or in the case of developers, your secret key), let anyone else access your account, or do anything else that might jeopardize the security of your account.

2. You will not transfer your account (including any Page or application you administer) to anyone without first getting our written permission.

These are clear many are not.

If a family member tells you that they are going to, or possibly already have, accessed the deceased’s digital accounts then you need to tell them they may have breached the “terms of use” and possibly broken the law.  The best option is always to contact the provider first and check to see what can and cannot be done.

Now briefly a few comments on incapacity.

The procedures to follow when dealing with financial accounts and also digital financial accounts are well established.

One new issue might be that access is made using the person’s password and without informing, for example, the bank in question.  That should not be done.  The bank should be informed that someone is acting under a Power of Attorney.  I would also recommend that you specifically ask the bank whether you can continue to use the same password.

What though of social media accounts?   The rules relating to social media accounts are not as clear.

Before I discuss social media accounts in this context it is worth saying that I am sure in most cases, when someone has lost capacity, what happens to their social media accounts is not likely to be the main issue that needs to be dealt with.

One example of where it might be an issue is if someone is posting abusive messages on an online account such as Facebook or Twitter.

The first issue is that the Attorney, if there is a Power of Attorney in place, should again not just access these type of online accounts. Firstly look at the Power of Attorney and see if it has the power to do what you think needs to be done.

Even if an Attorney does think he has the power to do what needs to be done, I would still recommend that he check the terms of the account and contacts the provider.  Although given how complicated some of these terms can be, it is probably easier to just contact the provider.

If there is a Power of Attorney in place many social media providers have procedures to have the account closed or suspended.

Not all though.

Again it may be that a family member will be tempted to deal with this issue themselves as they have access to the person’s password.  Then again how many people share these passwords with family members?  The issues that I have already mentioned regarding unauthorised access apply here as well.

If there is no Power of Attorney you would have to contact the provider to see what can be done and what they require you to provide them.  If that fails you might need a court order and possibly not a Scottish court order.

So how do the main digital companies deal with these issues?

SLIDE 9

Each digital service provider has different procedures for closing a deceased’s account or releasing content.

Normally they will request proof of death such as a death certificate or a link to a published obituary, as well as proof of the executor or family member’s relationship to the deceased user.

Helpfully most of the providers I have looked at have their contact details on their main pages.  Most of them now also display fairly prominently some guidance on these issues.

I will now look in more detail at a few of the main providers.

Let’s start with Facebook.  Facebook gives two options: delete the profile or set up a memorial page. If memorialised, the user’s personal information will be removed, and no one can log on to the account, but the user’s “wall” will remain and existing friends and family can leave messages.

Twitter will deactivate an account only after receiving proof of a user’s death, such as a link to an online obituary.  Twitter will also help families to recover an archive of the user’s public tweets.

LinkedIn will close an account if they receive proof of death.

YouTube allows an heir or attorney control of the account and all of the content if certain conditions are met.

Flickr stores billions of images and has a strict digital death policy where upon receiving a copy of a death certificate they will permanently delete all of the deceased’s accounts and associated content.  However, arrangements may be made by an executor to keep paying for the subscription if they wish to keep the content.  This may not be necessary if the deceased kept a backup on memory card or CD.

There are almost as many email procedures as email providers.   Google and Gmail will provide account information to family members at their discretion.  Microsoft have a next of kin process.  Others such as Yahoo are quite clear in that they will honour the user’s privacy and not release any record of email exchanges without a court order.  You may remember reading about how the father of an American soldier killed in Afghanistan tried to gain access to the emails he had sent his son.

There are of course lots more.  I have only mentioned a few.

Things are also getting slightly easier.

Almost all providers now accept the need for procedures on death.  The procedures are also becoming easier to use and even more importantly many providers are now asking the user what they want to happen to their content on death.  I will come back to this point nearer the end of this talk.

SLIDE 10

So what should we be doing?

First things first.  It is not an issue that should be ignored nor do I think it is being ignored.

Let’s start with Wills.

A Will is only as good as the questions asked and the information received. How we therefore approach taking instructions for a Will is very important.

Often we send a Will questionnaire to a client about the Will they want us to prepare or update. This gives them an idea of the issues that we want to discuss before meeting with them.  Digital assets should of course be mentioned in the questionnaire.

Some of the issues that you might want to mention include how important it is to make their executor aware of their digital financial accounts.  It is obviously much easier for an executor to know of a bank account where you have actual bank statements or a passbook.

You may also want to point out that if the executor has to spend a lot of time looking for their digital assets this means the executry might cost more and their beneficiaries might receive less.

You might also want to find out if they have they considered keeping an inventory of their digital assets.  If they already have such an inventory, or will do so in the future, advise them not to keep a note of their account numbers and passwords in the same place.

What of their social media accounts.  Do they know that some content cannot be retrieved?  Have they taken steps to ensure that it is not lost?

For example, the deceased may have used a digital asset service.

These store digital content for a fee. Think of an online safe opened on death.

Other services allow you to store online details of digital accounts and passwords.  A so called “digital beneficiary” is named who will be given access to all this information on the death of the account holder.

There is of course the obvious need to make someone aware that they have used these type of services.

What about the social media accounts that continue to exist even on death and the distress that could be caused to relatives and friends of the deceased.  Do they want these accounts closed?

You may also want to ask them if they want specific digital content to go to specific people.

If your client does not want to leave specific digital assets to named beneficiaries in their Will they will simply be dealt with under the residue clause.

Physical assets such as kindles or computers are dealt with in the usual way.  Remember it is the content held on these types of assets that should not be ignored and particularly where a third party provider is involved.

It is not really practical to list the digital assets, and in particular the more personal digital assets, within a Will.  How would this be kept up to date?

If tempted to leave digital information in a Will and some of the information changes a codicil would be required.

I would not recommend putting account names and the passwords into a Will.  This is likely to breach the bank’s conditions.   The Will also becomes a public document.

Although an informal writing is preferable to leaving a list of digital accounts in a Will, mainly because the list can be kept up to date without having to continuously update the Will, the client has to ensure that on death the informal writing will be found and passed to the executor.

Alternatively, and like the majority of Scots, the client may wish to do nothing.  If so a file note is required.

Now a few quick points on disputes.

I am sure many people in this room have had to deal with disputes between beneficiaries.  These disputes are as often as not over small personal items that have a great deal of sentimental value.  This could just as easily apply to digital assets.

One issue that has already resulted in disputes is where one family member wants a Facebook memorial page and another does not.

Another is where a partner leaves a law firm and there are restrictions as to how and when clients can be contacted.  What if the partner leaving has a LinkedIn account and uses it to stay in touch with his clients?  I know of a number of law firms that are trying to ensure that the LinkedIn account remains in its control in this situation.

Valuation of these assets could also be an issue and lead to disputes.  It is not clear how to even start valuing many of these assets and in particular assets such as virtual games characters.

As mentioned, there may also be a dispute as to who had the right to access an online account after the user’s death.  This might not just be between family members but between an executor and a digital beneficiary.

So to recap what do we and our clients need to think about doing.

There is a need to plan our digital afterlife by keeping a running inventory of our accounts and ensuring it’s kept in a safe place.

Content such as photographs need to backed up and legal advice needs to be taken if we have particularly valuable online assets.

And it is crucial that we let someone know of the digital asset planning we have undertaken so that these valuable or sentimental assets aren’t simply lost.

Before I finish a few thoughts on what the future might hold.

It is usually a dangerous endeavour to predict what might happen but in this case, certainly in the short term, it seems clear.

Awareness of digital assets will continue to increase as more of our lives become digitalised.  More articles will be written and talks given.  I also suspect there will be more high profile news stories surrounding these issues.

That means solicitors will have to be prepared to answer questions associated with digital assets.

This will happen in a number of ways.  We will update our Will and executry checklists and our styles.  We will produce help sheets and more information for our websites.  We will also become more comfortable talking about these issues.  We may also review our terms of business to be clearer as to what we will and not deal with.

What though of the companies providing these services.

The companies providing these services will continue to update their own procedures.

More of these companies will start to ask what the user wants to happen to the account and content if they die or become incapacitated.  That will hopefully remove some of the issues that an executor has to deal with.

Given the fact that most of the companies I have mentioned today are headquartered in the USA, and in particularly California, it is only to be expected that the US is already looking at the issue of a uniform approach to their terms and conditions when an account holder dies.

The US Uniform Law Commission is looking at giving authority to the next of kin to access, manage, distribute, copy and delete digital assets.

These companies will also continue to be pressed to update their policies on bullying, stalking, privacy and security.

More companies will specialise in tracing digital assets and retrieving the content.  For a fee of course.

More companies will also specialise in “tidying up” a person’s digital legacy.   Again for a fee.

More people will pay companies to store their digital content.

Closer to home the Scottish Government will I am sure update its publications such as: “What to do after a death in Scotland” to make mention of some of the issues associated with digital assets.  The Crown Office, OPG Scotland, The Law Society of Scotland and HMRC will continue to issue guidance.

It will become more common to name a digital beneficiary in our Wills.

It will become common to specifically state that the executor should deal with social media accounts.

Powers of Attorney powers will specifically refer to social media accounts.

There will be more disputes as to who had and who did not have the right to access online accounts.

Our Wills may also change.  Can you imagine a digital Will with an inventory section that can be updated easily online and with links to specific instructions you have given to different service providers.

Again something to ponder.

Thank you.

Questions.