Online banking, crypto assets, e-money… What will happen to our “digital legacy” when the “what ifs” happen?

Survivors should consider it difficult to “unlock” their phones.

With the spread of online banking, online securities, and crypto assets such as Bitcoin, attention to “digital legacies” is increasing.

Ms. A, a woman in her 50s living in Kanagawa Prefecture who lost her unmarried younger brother, who retired from a major electronics manufacturer, suddenly in the spring of this year, says as follows.

My mother is my brother’s heir, but I searched his apartment instead to find out his property. Luckily, neither the computer nor the smartphone were locked, and I found a file containing what looked like passwords in a folder on the computer. It all went rather smoothly.

But in the end, it took us six months to go through all the financial assets from the computer and smartphone, check the balances of several online banks and online securities he had used, and complete the inheritance process.”

As in Mr. A’s case, it is said that generally speaking, financial assets subject to digital inheritance are often known only to the individual concerned, as there are no passbooks or contracts. If the person dies without telling anyone, the family members who are in a position to inherit the property are in a very difficult situation.

What happens if the heirs fail to find the digital legacy, and what needs to be done as a prenatal measure? Attorney Shoichi Kitagawa, who is well versed in digital heritage, told us.

One of the characteristics of digital heritage is that it is difficult to detect if the deceased did not inform his or her heirs about the existence of digital heritage before his or her death. Digital data that constitutes a digital legacy is generally located on digital devices such as computers, smartphones, and tablets, as well as in various online accounts.

For digital devices, surviving family members may first run into the problem of unlocking them. Smartphones, in particular, are becoming more and more secure every year.

For example, with iPhones, depending on the settings, data can be erased after 10 wrong passwords. There is a technique called digital forensics that can unlock passwords or bypass passwords to retrieve data, but if you ask a professional company to do this, legal issues may arise, such as whether it can be done without the consent of all heirs.”

Mr. A seems to have traced the digital data of his deceased brother’s devices to online banking and online securities, but what does a digital legacy entail in the first place?

Mr. A’s definition of digital heritage is simply the ‘digital data’ held by a deceased person during his or her lifetime.

When people hear the term “digital heritage,” many probably think of online banking. Of course, I do not intend to deny the idea of digital heritage in a broader sense, but online banks do not fall into the category of digital heritage in the narrow sense that I have in mind.

The reason is that online banks ultimately have the same contractual relationships as traditional banks, and there are no major new legal issues to consider. Although they are unique in that they mainly conduct transactions over the Internet and do not issue passbooks, it would be possible to detect them through cash cards issued and e-mail notifications in the same way as conventional banks.

If an account at an Internet bank is designated as a payroll account or a debit account for cell phone charges, it may be possible to detect the presence or absence of such an account through related documents. There is no way to detect the presence or absence of an online bank account other than through the digital world.

It is not impossible to inherit an online bank account without knowing the password. Even in the case of conventional banks, there must have been cases where the heirs did not know the PIN. Even with online banks, if you can prove that you are the heir, you can proceed with the inheritance procedures.

Transactions between individuals are unaware of their existence itself… Crypto assets whose “secret key” is unknown cannot be retrieved forever.

So what does Mr. Kitagawa mean by “digital inheritance in the narrow sense of the term”?

We believe that it refers to digital data held by a deceased person during his/her lifetime, of which “cryptographic assets” are a representative example of a digital heritage with property value.

Currently, I believe that many people hold crypto assets via transactions at crypto asset exchanges. For crypto assets held through this method, if the surviving family members can detect the transactions with the exchanger itself, it should be possible to handle the inheritance process with the exchanger in the same way as with a bank.

Detection would also be possible through records of fund transfers from the bank account for the transaction and e-mail communications from the exchanger.

However, crypto assets can also be traded directly between individuals without going through a crypto asset exchanger. Crypto assets held in this manner are more difficult to detect.

Those who trade between individuals manage their crypto assets in their own “wallets”. Many will install and use wallet apps on their smartphones and computers. While the presence of such apps may make one aware of the existence of crypto assets, the absence of traces of fund transfers from bank accounts or email communications from exchangers makes detection more difficult.

There is a further hurdle waiting for you.

In order to access and transfer crypto assets, you need a “private key” that is managed by a wallet. While many holdings through transactions with crypto asset exchangers may not directly use the wallet application, those who hold crypto assets without an exchanger must manage their own wallets.

Even if the surviving family members are aware of the deceased’s possession of crypto assets, if they do not know the password for the wallet that manages the private key or the information to restore the wallet in case the password is forgotten, access to the crypto assets will be virtually impossible.

What would then happen to the deceased’s crypto assets?

They will remain there forever as data, inaccessible to anyone. There are already a certain number of inaccessible crypto assets, and some analysts believe that a significant amount of certain crypto assets may have been permanently lost due to inaccessibility.

If access to the deceased’s wallet becomes impossible, crypto assets cannot be redeemed or transferred. In that case, what about inheritance taxes?

At a House of Councilors Finance and Monetary Affairs Committee meeting held in 2006, the deputy director of the National Tax Agency at the time refused to discuss the issue in general terms, saying, “Even if the heirs do not know the password set by the decedent, they will inherit the crypto assets held by the decedent, so the crypto assets will be subject to inheritance tax. The interpretation is that the cryptographic assets are subject to inheritance tax.

There are some uncertainties, such as how the actual process will be handled, but caution is advised.”

Other types of digital heritage (in the broad sense of the term here) that are subject to inheritance include airline miles and prepaid electronic money that is charged in advance.

Inheritance of miles or points depends on the contractual relationship with the service provider, although it is believed that frequent flyer miles of major Japanese airlines can be inherited.

Recently, an increasing number of e-money service providers have revised their terms and conditions or established Q&As regarding inheritance and refund procedures. It is advisable to check the terms and conditions of any of them.

Shoichi Kitagawa is an attorney. Graduated from the University of Tokyo Faculty of Law.’ Registered as an attorney in 2007 (member of the Daiichi Tokyo Bar Association). His publications include “Q&A Digital Marketing Legal Practice: Points to Keep in Mind and Risk Countermeasures in Advanced Fields” (Nihon Kayo Shuppan) and “Digital Heritage Legal Practice Q&A” (Nihon Kayo Shuppan). He has also given lectures titled “Digital Heritage and Related Legal Practice” at workshops of the Japan Federation of Judicial Scriveners’ Associations and other occasions.