Inheritance of Digital Financial Assets: Current Problems and Development Prospects

Vronskaya Mariya Vladimirovna PhD in Law Associate Professor at the Department of Private Law of Vladivostok State University of Economics and Service  690014, Russia, Vladivostok, Primorsky Krai, 42 Balyaeva str., sq. 119 m.vronskaya@mail.ru Other publications by this author

Semkina Tat'yana Aleksandrovna Bachelor, Department of Civil Law Disciplines, VVGU 690014, Russia, Primorsky Krai, Vladivostok, Gogol str., 41 smkina.tanya@mail.ru

The rapid development of scientific and technological progress, the era of digitalization of all spheres of life are a civilizational challenge of the new time, and determine the vector of orientation in the field of state and legal regulation of these processes. Scientific and technological progress with incredible speed is striving higher and higher, conquering new horizons of various technologies, inventing something completely new, and discovering the unexplored. Thus, the development of Internet technologies has led to the emergence of absolutely new objects of civil law, which, naturally, should become a full-fledged part of civil turnover. However, unlike rapidly developing technologies, law is a less mobile structure for rapid changes, which raises the problem of the actual existence of technology and even its application, associated with fragmentary legal regulation of such technology, or its absence at all. This thesis is fully applicable to digital financial assets, since there are a number of significant gaps in their legal regulation, along with the rapidly expanding practice of their use in the business (civil) turnover of the country.

 The relevance of this study is determined by several conditions. Firstly, according to the Decree of the President of the Russian Federation dated 07.05.2018 No. 204 "On national goals and strategic objectives of the development of the Russian Federation for the period up to 2024" ^[1], one of the main national development goals of the Russian Federation is to accelerate the technological development of Russia and ensure the accelerated introduction of digital technologies into the economy and social sphere of the country.. One of the stages in achieving this goal was the adoption of the Federal Law "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation", which both clarified some issues of the CFA's appeal and created several new problems that need to be sorted out. One of the stages in achieving this goal was the adoption of the Federal Law "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation", the adoption of which allowed to create a legal basis for the circulation of CFA in Russia, but did not eliminate all legal problems of law enforcement practice regarding the use of CFA by subjects of civil legal relations. Secondly, the system of civil legislation and the interpretation of the provisions containing the legal regime of the CFA still allow us to establish the legal nature and place of digital financial assets in the system of objects of civil law, which complicates their application in civil circulation. Thirdly, the hypertrophied dissemination of the practice of using digital financial assets not only by the professional financial community represented by financial authorities and business entities, but also by citizens of the country determine the prospects for the legislative regulation of hereditary legal relations in relation to digital financial assets, determining the order of their inheritance and inclusion in the inheritance estate ^[2].

To establish the legal nature of digital financial assets, it is necessary to analyze their legislative formulations. The first is enshrined in Article 141.1 of the Civil Code of the Russian Federation: "digital rights are recognized as binding and other rights named in this capacity in the law, the content and conditions of which are determined in accordance with the rules of the information system that meets the criteria established by law" ^[3]. The second rule necessary to determine the legal nature is contained in Article 1 of Federal Law No. 259-FZ, according to which digital financial assets are recognized as: "digital rights, including monetary claims, the possibility of exercising rights under equity securities, the right to participate in the capital of a non-public joint stock company, the right to demand the transfer of equity securities, which are provided for by the decision on the issue of digital financial assets in accordance with the procedure established by this Federal Law, the issue, accounting and circulation of which are possible only by making (changing) entries in an information system based on a distributed registry, as well as in other information systems" ^[4]. Based on the literal interpretation of the norms of the articles of the Civil Code of the Russian Federation and Federal Law No. 259-FZ, it is necessary to determine the legal nature of digital financial assets as legally binding. This thesis is confirmed by such civilistic postulates of the law of obligations as linguistic characteristics, and the use of such phrases as "binding and other rights", "monetary claims" and "the right to demand" in the definition of digital financial assets. Consequently, provisions on the law of obligations should be applied to digital rights, starting with the nature of their existence (created for the purpose of acquiring rights), ending with signs and methods of protection (relative nature, consists in the orientation of claims against a specific person bound by obligations to the one who will apply protection).  Meanwhile, if we proceed from the special requirements for the form of issuance, turnover, accounting of digital financial assets within the information system, since all the listed requirements are connected with it, then giving digital rights the appearance of a right of claim is one of the possible scenarios for determining their legal nature, since based on the above regulatory legal acts There are four types of rights that can be exercised using digital financial assets. Firstly, monetary claims, which, as mentioned above, is a vivid example of the binding legal nature of digital financial assets. Secondly, the possibility of exercising the right to issue securities, which, by virtue of their own legal nature, are documents certifying property rights. Third, the rights to participate in the capital of a non-public joint-stock company. Fourth, the right to demand the transfer of equity securities, which is also a binding right arising from the contract for the disposal of non-documentary securities. Thus, digital financial assets can be defined as a form of fixing monetary claims, claims for the assignment of non-documentary securities, rights under equity securities, shares of non-public joint-stock companies and mandatory requirements from contracts for the disposal of non-documentary securities ^[5]. All of the above monetary requirements consist of possible requirements that can be implemented by means of digital financial assets, as well as the possibility of implementing such requirements is specified in the laws.

Having established the legal aspect of the legal nature of digital financial assets, it is also necessary to mention their material-binding nature. According to Article 128 of the Civil Code of the Russian Federation, digital rights are classified as a type of property rights, which refers to digital financial assets, since they are a type of digital rights. Therefore, digital financial assets have a binding nature. At the same time, a person possessing a digital financial asset has the right to dispose of it at his discretion, for example, to conclude a transaction with a digital financial asset, to invest it, if this digital financial asset implies such an opportunity, also a person actually possesses a digital financial asset, there is a corresponding entry in the information system, in addition, a person can make a profit from a digital financial asset and satisfy their specific needs, that is, the owner of a digital financial asset has the entire triad of rights, however, which is characteristic of property rights. A digital financial asset can be disposed of, but only within the boundaries of the information system, otherwise the authority of the order has not been changed in any way. This aspect characterizes the real-legal nature of digital financial assets.

The most striking sign of the proprietary nature of digital financial assets is that a certain digital financial asset belongs to a certain person or owner, which is confirmed within the information system.

The above determines that the legal nature of digital rights is quite contradictory, on the one hand they have a real-legal character, on the other hand they have signs of a law of obligations, despite the fact that in the system of objects of civil rights digital rights are named as a kind of property (obligation) rights.

As a rule, the problems of the existence and use of a particular object of civil law arise from the features of this object. Thus, the main problems arising from legal relations regarding digital financial assets are related to their unusual nature from the point of view of typical objects of civil law. Therefore, the establishment of the features of such non-standard objects will help not only to identify the main problems, but also to predict ways to eliminate them.

The first feature of digital financial assets is their immateriality, turnover, issuance and accounting are carried out within a specialized, virtual space, namely within the information system. This implies the second feature of digital financial assets – limited turnover, which also implies the possibility of turnover of digital financial assets only within the information system. As a third feature, we can highlight the fact that digital financial assets in their essence represent a code that can be reproduced or detected only through the use of technical means. As a fourth feature, you can specify a kind of personalized binding of the code to one person who can perform actions to make a record of the crediting of digital financial assets into the information system. Such features represent the greatest problem in the implementation of hereditary legal relations with digital financial assets, since heirs who are not persons capable of making entries in the information system about the "transfer" of digital financial assets from the first owner to the second owner will not be able to exercise rights on digital financial assets in respect of which they have entered into inheritance. No less urgent is the problem of determining the hereditary mass itself, in terms of the composition of the property. On the one hand, the inheritance mass should be made up of digital financial assets directly, since from the point of view of legislation they belong to objects of civil law, and therefore can be inherited by legal successors. But here the question also arises about which digital financial assets can be included in the list of objects of inheritance, this question also remains open. This is due to the fact that the inheritance mass in relation to such a special object consists of two components – the right to possess a unique access code to the information system and the digital financial asset of the testator itself. However, the implementation of one. Regardless of the other, it is impossible. As a result of the absence of the code, a situation arises in which a citizen acquires ownership rights or uses specific content (digital asset), but cannot use it without an account ^[6]. The second component of the hereditary mass will be the right to be entered into the register of users of the information system, but for this a person must have a number of qualities. There is a possibility of including another component in the hereditary mass – in fact, the right to dispose of digital financial assets itself, it naturally follows from the first component. Also, as can be seen with the second approach to understanding the hereditary mass, if the testator has digital financial assets, a combination of components that make up the hereditary mass itself is possible, but the first of these components will always be permanent and unchangeable, due to the fact that all subsequent named components are tied to it.

The next problem is already related to specific types of inheritance, or rather what problems each of the types of inheritance will cause for heirs whose testator possessed digital financial assets. In the case of inheritance by law, the inheritance mass is formed from things belonging to the testator at the date of death, other property, including property rights and obligations. However, in this case, it is not possible to inherit digital financial assets because, although they may be included in the list of objects of inheritance, heirs will not be able to access them, since two conditions must be met for this. The first is to have the status of a person who is included in the register of users of an information system that takes into account digital financial assets. This condition is not so difficult to fulfill, since the conditions for entering a person into the register of holders of digital financial assets are not a complicated procedure, and it is even easier to fulfill this condition if the heir is already a person in the register, has his own digital financial assets. The second condition is that a person must have access to an information system that takes into account digital financial assets by having a unique code necessary for such access, which allows him to receive information about digital financial assets that he possesses, as well as to dispose of these digital financial assets through the use of an information system ^[7]. That is, the person must be an entrepreneur, be registered in this capacity, and be included in the register of users of the information system. As can be seen, this condition forms an independent problem related to the fact that digital financial assets and the information system in which they are located is a rather closed space, for access to which it is necessary to have a number of properties. Also, this condition is completely impossible to fulfill if the heirs do not have an access code. After all, even having inherited digital financial assets, which they now rightfully possess, they cannot realize it. The situation is different with inheritance by will.

According to article 1119 of the Civil Code, which enshrines the freedom to make a will, the testator has the right, at his discretion, to bequeath any of his property to any persons and to any extent. The regime of the testator's direct will in relation to digital financial assets will be positive and will allow the heirs to dispose of the digital financial assets transferred to them only if the testator specifies in the will all the information that is necessary to access the information system in which digital financial assets are taken into account. However, if the testator did not do this, the heirs will find themselves in the same situation as when inheriting by law. In addition to the will, another form of the will of the testator may be provided – a testamentary disposition. Inheritance of digital assets in practice, in the absence of a testamentary disposition indicating all the necessary access codes, logins and passwords and a list of digital assets owned by the testator, generates a lot of problems in practice, since it is quite difficult to establish the fact that the testator has a digital asset, and it is almost impossible to obtain access codes ^[8]. The peculiarity of a testamentary disposition in terms of specifying digital financial assets in them also represents a certain legal gap. This is due to the fact that the testamentary disposition assumes an indication in it of the rights to funds deposited or held in any other account of a person in the bank, and digital financial assets are not conditionally stored in the bank, they exist in the bank's information system. The legislator also specifies the form of storage of funds that can be specified in the testamentary disposition – this is a deposit or an account. Neither one nor the other storage method applies to digital financial assets. Therefore, the inclusion of digital financial assets in the testamentary disposition is currently impossible. This question, like many others, also remains unanswered. Another problem arising from the previous one, which heirs may encounter when inheriting digital financial assets, is actually the very knowledge of whether the testator was the owner of digital financial assets, and most importantly, if the heirs believe that this person was the owner, how can this information be confirmed. Since the notary does not have the opportunity to receive such information, this information is also not publicly available, the heirs will also not be able to find out about the existence of digital financial assets. However, this problem still has a hypothetical solution. Heirs can contact a banking organization that is in the register of information system operators and request the information they are interested in, while most likely it will be necessary to attach all documents confirming the right to inheritance. But even if the banking organization agrees to provide access to this kind of information, this action will still have no semantic meaning, since the heirs do not have an access code, even if they knew about the existence of digital financial assets from the testator.

Another serious problem that arises when inheriting digital financial assets is the inability of heirs to answer for the debts of the testator with such property. Thus, according to article 1175 of the Civil Code, the creditors of the testator have the right to present their claims to the heirs who have accepted the inheritance within the limitation periods established for the relevant claims. Prior to the acceptance of the inheritance, creditors' claims may be presented to the hereditary property, in order to preserve which the executor of the will or a notary is involved in the case. This problem reveals the inability of the heirs to answer for the debts of the testator, to whom the owner of digital financial assets had monetary claims, the confirmation of which is in the information system. That is, the creditor, having the right of claim, has no real opportunity to realize it, to demand from the debtor the fulfillment of the obligation imposed on him. As well as the heirs, despite the fact that they intend to answer for the debts of the testator, they cannot carry it out due to the fact that they do not have an access code to the information system in which digital financial assets are located, thanks to which the fulfillment of the obligation would be possible. There is a situation in which both the creditor and the debtor find themselves in a disappointing position. However, the placement of roles may change. Heirs who have received the right to claim digital financial assets will be in the place of the creditor. But at the same time, the debtor's position will change slightly. In this situation, the debtor has access to his digital financial assets and wants to fulfill the obligation, but the creditors of the heirs will not be able to accept this fulfillment, since a record of the repayment of the corresponding digital financial asset should appear in the information system.

The provision of the Civil Code, which fixes the procedure for inheritance of extortionate property, completes the series of problems arising during the inheritance of digital financial assets. The property acquires the status of a frozen one if there are no heirs, or none of the heirs has the right to inherit, or all heirs are removed from inheritance, or none of the heirs accepted the inheritance, or all heirs refused the inheritance and none of them indicated that they refused in favor of another heir. In the absence of legal regulation of inheritance of circus financial assets, their possibility of becoming extortionate property increases. The problem of inheritance (determining the order) of the extortionate property is burdened by the regime of this property itself. Firstly, there is no special rule in Russian law regulating conflict of laws issues of inheritance by the state ^[9]. Secondly, despite the fact that the public heir - the Russian Federation does not have the rights to seize the access code that belonged to a certain person, allowing him to make changes to the records of the information system himself. That is, digital financial assets do not acquire an heir either as persons who were related to the testator by blood, or as the Russian Federation as an heir who "inherited" the extortionate property in the form of digital financial assets. Such property forms a financial vacuum, and the monetary requirements provided for by the inherited digital financial asset cannot be realized, the movement of property legal relations will end on this digital financial asset. This trend does not correlate with the digital transformation and the economy of the Russian Federation, and therefore needs to be resolved at the level of legislative initiatives.

The main conclusions of this study are:

1) The existence of such problems of inheritance of digital financial assets as the inability to obtain an access code to a digital system that contains digital financial assets, the inability to exercise the rights of creditors in terms of foreclosure on digital inherited property, the inability to inherit extortionate property.

2)                  Not all of these problems can be solved based on the norms that the legislator has already adopted to regulate the turnover of inheritance of digital financial assets. However, the law is a dynamic system that must adapt to a rapidly changing world, therefore, the introduction of certain norms establishing the regulation of inheritance of digital financial assets is possible in the near future, which will avoid further problems in this type of legal relationship, since in the future citizens of the Russian Federation will face the order and possibility of inheritance of digital financial assets. assets more and more often. Solutions to the problems mentioned above are possible.

3) We should start with the problem of lack of access to the code of the information system in which digital financial assets are located, and how this problem can be solved. Regardless of whether the testator made a will or not, one way or another, the heirs do not have an access code to the information network. Since the heir needs to apply to the notary with an application for acceptance of the inheritance, the solution to the current problem may be the creation of an electronic money search system within a Single information System, where the notary will be able to send requests to cloud services and receive information about the status of the testator's electronic account ^[10]. Thus, the notary will be able to find out information about the quantity and quality of digital financial assets that the testator possessed, as well as what rights were certified by the inherited digital financial assets. The solution to the problem of obtaining an access code is also possible in this way, however, the notary will need to go through several levels of authentication as a person authorized to receive such information. As an additional protective measure, it is possible to provide for the obligation for heirs to change the access code within three days after receiving the original access code. In particular, such a rule can be introduced both in the legislation on notaries and in Article 4 of Federal Law No. 259-FZ "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation".

            The problem of the extortionate property of digital financial assets is not new. As noted in many studies, there is no regime of legal regulation of extortionate property in Russian legislation, the law on extortionate property has not yet been adopted. But thanks to its introduction into the system of legal acts of penitents of inheritance, a number of problems could be avoided, including those that may arise when the Russian Federation inherits digital financial assets. As for the order of inheritance of digital financial assets as extortionate property, the projected law should establish appropriate rules for obtaining an access code to the information system, empowering the relevant authorities authorized to identify, record and register rights to extortionate property.

A universal solution to the problems that arise during the life of the testator and (or) arose after it can be the use of an inheritance contract. At the conclusion of the inheritance contract, the heir is informed about what kind of property and on what grounds it passes to him. The legislator also established that the testator can dispose of the property even after the conclusion of the inheritance contract. Based on this possibility, the testator can help the future heir learn how to manage future property, which is relevant provided that the inheritance mass consists of digital financial assets. Thus, the effectiveness of the inheritance contract in the digital sphere can be expressed in the following. Firstly, it is the definition of objects of hereditary succession, the origin and existence of which may be known to a limited circle of persons due to their digital nature. In the inheritance contract, such objects will not only be listed, but also clearly described (specialists can be invited to solve these tasks). Secondly, it is a description of the order of transfer of objects that exist in "digital" form (for example, the order of obtaining the "key" of access to bitcoins) ^[11].

In conclusion, the prospects and trends of inheritance of digital financial assets are the drafting of a will in electronic form. However, Russian legislation prohibits making a will using electronic or other technical means, which, in our opinion, is only a temporary measure until a unified view is developed on preventing all possible risks of recognizing electronic wills^[12]. Such a will will be of particular relevance, since many citizens are in the habit of storing all the necessary passwords, access codes in Word document format or Excel tables, and foreign judicial practice has already known cases of recognition of such documents as wills. It is too early to say for sure that a similar practice will appear in the Russian Federation, but the prerequisites for this already exist at the present time.

Summing up, it can be unequivocally established that the problems that the heirs of digital financial assets may face are much more than the intended ways and possibilities of their solution. However, this does not mean that developing the digital environment by participating in economic relations through digital financial assets is unpromising, costly and, in general, useless. The property aspect of the legal regulation of digital death can be implemented through the development of a contractual direction, raising the question of the possibility of inheritance of rights and obligations, etc.^[13]. Until citizens begin to actively use the objects of civil law provided by the legislator, their legal regime will not begin to take shape. This is especially clearly expressed when such complex objects as digital rights and digital financial assets are introduced into circulation, the legal status of which, to a greater extent, is possible only through application.