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Your Cryptocurrency and NFTs Need to Be Included in Your Estate Plan

As more people continue to purchase cryptocurrencies and non-fungible tokens (NFTs), digital assets are becoming a bigger part of the investment world and of people’s estate plans. If you want to pass these assets to loved ones upon death, you’ll need to plan for it, says the article “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Planfrom Kiplinger. Otherwise, securing, transferring and gifting crypto and NFTs can create unsolvable problems and lost assets.

There are many different kinds of crypto and NFTs, with Bitcoin, Ethereum, Binance Coin, Thether among them. An NFT is a unique, collectable, and tradable digital asset, like digital art or a photo. NFTs are purchased through a bidding process in this universe and in the metaverse, an online world where people are buying homes, real estate and more in the shape of NFTs. Sales of NFTs are estimated to have reached more than $17 billion in 2021. For better or worse, the future is here.

Cryptocurrency is accessed through a private key. This is a series of alphanumeric characters known only to the owner and stored in cold storage or a digital wallet. Whoever has possession of the key can buy, sell and spend the digital currency. If you have crypto, your family or fiduciary needs to know what you have, where to find the assets and what to do with them.

One option is to share the private key or place crypto assets and NFTs in custody, using a software application or a hardware wallet. There are a number of companies now offering these services. An old-school option for this new world asset is to create a secure spreadsheet of your digital assets and list the login protocols for each account.

For now, it is difficult to open crypto accounts and NFTs in the name of a revocable or irrevocable trust. However, digital wallets allowing you to open an account in the name of a trust do exist, if the company handling the digital asset permits. This is a very new, rapidly evolving asset class. Beneficiaries may not yet be named for crypto accounts. However, this may change in the future.

With no trust account and no named beneficiary, what happens to your crypto and NFTs when you die? For now, they must pass through your probate estate under the will. Your estate planning attorney will make sure your estate plan includes the correct way to give digital asset powers for the fiduciary handling your estate and include digital asset powers in your will, trust, and durable power of attorney.

If your state has adopted the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)—46 states have—then it will be easier for loved ones to manage digital assets in case of incapacity or when you pass, as long as your estate plan addresses them.

Reference: Kiplinger (May 23, 2022) “Got Cryptocurrency or NFTs? They Need to Be in Your Estate Plan

How Does Cryptocurrency Work in an Estate Plan?

Crypto-assets, including cryptocurrencies and non-currency blockchain tokens, hold significant family wealth today and present challenges to securing, transferring, protecting and gifting, as explained in the article “What Holding Crypto Means for Your Estate Plan” from U.S. News & World Report.

Traditional estate planning is evolving to include this new asset class, as digital asset investors embrace a market worth more than $1 trillion. Experienced investors who use digital assets to expand their asset diversification are more likely to understand the importance of protecting their investment through estate planning. However, first time investors who own a small amount of cryptocurrency or the early adapters who bought Bitcoins at the very start and now are worth millions, may not be as aware of the importance of digital asset estate planning.

Unlike traditional bank accounts, controlled through a centralized banking system and a legacy system of reporting, digital assets are by their very nature decentralized. An owner has access through a private key, usually a series of numbers and letters known only to the asset’s owner and stored in a digital wallet. Unless an executor knows about digital wallets and what a private key is and how to use them, the assets can and often do evaporate.

It can be challenging for executors to obtain access to traditional accounts, like 401(k)s or brokerage accounts. Mistakes are made and documents go astray, even in straightforward estates. In a new asset class, with new words like private keys, seed phrases, hardware wallets and more, the likelihood of a catastrophic loss increases.

A last will and testament is necessary for every estate. It’s needed to name an executor, a guardian for minor children and to set forth wishes for wealth distribution. However, a will becomes part of the public record during court proceedings after death, so it should never include detailed information, like bank account numbers. The same goes for information about cryptocurrency. Specific information in a will can be used to steal digital assets.

Loved ones need to know the crypto-assets exist, where to find them and what to do with them. Depending on the amount of the assets and what kind of assets are held, such information needs to be included and addressed in the estate plan.

If the assets are relatively small and owned through an exchange (Coinbase, Biance, or Kraken are a few examples), it is possible to list the crypto asset on a schedule of trust assets and ensure that the trustee has all the login information and knows how to access them.

For complex cases with significant wealth in digital assets, establishing a custodian and trustee may be necessary. A plan must be created that establishes both a custodian and trustee of digital assets. Steps include sharing private keys with a family member or trusted friend or splintering the private keys among multiple trusted individuals, so no one person has complete control.

This new asset class is here for the foreseeable future, and as more investors get involved with cryptocurrency, their estate plan needs to address and protect it.

Reference: U.S. News & World Report (Oct. 5, 2021) “What Holding Crypto Means for Your Estate Plan”

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