E-Sign on the Dotted Line?

By Colin Korzec

Nearly 77 percent of the US population owns a smartphone. Nearly 75 percent of the US population own a desktop or laptop, while nearly half own a tablet. In a world where over half of Americans pay their bills online and a whopping 96 percent of Americans shop online, it isn’t a stretch to say that Americans are hooked on technology.

But have you ever wondered how you are able to “sign” for online transactions in a legally binding manner—for instance, when you open a new brokerage account or when you borrow money and execute all the paperwork online? Why is it then that we are all still required to physically sign certain documents—like your last will and testament? Let’s first look at how the current laws regarding online transactions have come to be.

In 2000, Congress enacted the Electronic Signatures in Global and National Commerce, or E-Sign, Act to facilitate the use of electronic records and electronic signatures in interstate commerce by ensuring the validity and legal effect of contracts entered into electronically. In addition to the E-Sign Act, the Uniform Electronic Transactions Act was drafted by the Uniform Law Commission in 1999. The ULC was established in 1892 and is comprised of legal scholars and practitioners. The ULC provides states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law. UETA does not, however, apply to a transaction to the extent it is governed by a law governing the creation and execution of wills, codicils or testamentary trusts.

The ULC has recently started drafting a new piece of legislation to address the issue of electronic wills in light of the continued advancements in technology and the ability to transact everyday financial transactions online thus raising the question of when will your last will and testament be online?

The Drafting Committee on Electronic Wills will draft a uniform act or model law addressing the formation, validity and recognition of electronic wills, with appropriate technology-based safeguards to ensure the integrity of these documents for admission to probate.

What are the concerns with an electronic will?

In order to make a valid will, most states require the testator to satisfy three main formalities: (1) the will must be in the form of a writing; (2) the will must be signed by the testator; and (3) the will must be signed by at least two witnesses, who attest to the testator’s signature. These three main execution formalities have remained largely unchanged for hundreds of years. Why the need for such formalities? They are principally intended to provide evidence of the testator’s intent, underscore the significance of creating a will and to help ensure there is no fraud or duress during the process.

In the digital age, however, when many other significant transactions can be made electronically—including the creation of accounts that pass wealth outside of the probate process (think “payable on death accounts” or individual retirement accounts)—the question arises whether the formalities surrounding the creation of a valid will should adapt to accommodate digital execution.

The statutory electronic will

The first state in the country to pass a statutory electronic wills law was Nevada. It is interesting to note that Nevada passed its statute back in 2001. Nevada’s law requires the testator’s electronic signature and at least one “authentication characteristic”—defined as a “fingerprint, a retinal scan, voice recognition, facial recognition, a digitized signature or other authentication using a unique characteristic of the person.” Since then (and really only very recently) Arizona and Indiana passed electronic wills legislation.

While it seemed Florida would be the next to take the leap of modernizing the probate laws, the effort ended in June of last year when then-Gov. Rick Scott vetoed proposed legislation regarding electronic wills. The bill had sought to allow testators to sign wills or trusts electronically—simply by typing his or her name. In his veto letter, Scott expressed the importance of finding “the right balance between providing safeguards to protect the will-making process from exploitation and fraud while also incorporating technological options that make wills financially accessible.”

The electronic wills wave is undoubtedly coming. This wave will certainly carry some practical challenges along with it, but in this ever evolving digital age, the evolution in this area seems inevitable.

What are the implications for banks or corporate fiduciaries? That depends on the specifics of any uniform act, but one can certainly imagine the day of holding client’s estate planning documents in physical form—often in bank vaults—is likely coming to an end. Whether that end is 10 years or 20 years remains to be seen, but banks should begin to plan ahead for the day when they may need to store client’s wills electronically. And they need to make further plans for how they may need to record any “authentication characteristics” that may be required.

At a minimum, banks will want to ensure they are following the efforts underway to craft a uniform electronic wills law. The wave is coming, and we all need to be prepared.

Colin Korzec is managing director and estate settlement national executive at U.S. Trust, Bank of America’s private wealth management division.