A new legal issue in estate planning is how to handle digital assets during one's lifetime, and how to pass on these digital assets to future generations.
Digital assets can include a variety of things, but in this article, we will focus on cryptocurrency. Cryptocurrency can most easily be defined as a virtual currency that uses a heightened security technology called blockchain. Due to their intangibility, cryptocurrencies are stored and traded electronically. We are seeing more clients and estates with investments in cryptocurrency, such as Bitcoin. As a reference for readers who are new to cryptocurrency, one Bitcoin was valued at less than one cent in 2010, and as of the writing of this article, one Bitcoin is valued at $45,766. Additionally, the full market cap of all available bitcoin is a staggering $868 billion. The rise in the value of cryptocurrency and a newfound public investing interest presents new legal challenges when crafting the best estate plan for each client.
One of the most important goals in estate planning is making it as easy as possible for your loved ones to access and administer your estate. If a client currently has, or plans on investing in cryptocurrency, it is crucial to obtain information on any cryptocurrency held by the individual and to include language in the estate planning documents that permits fiduciaries to access, retain, and manage the cryptocurrency without extraneous liability. It is important to provide these particular powers to the fiduciaries in an estate or trust, because even if the decedent provides the fiduciary with his or her cryptocurrency pass code during his or her life, the fiduciary's use of the pass code after death without the proper permissions in the decedent's estate planning documents and related laws could cause the fiduciary to violate federal or state privacy laws, terms of service agreements, or computer fraud and data protection laws.
For individuals with trusts that plan on or are currently holding cryptocurrency as an investment, your trust document should give authority to the trustee to handle the cryptocurrency. At a minimum, a cryptocurrency investor who wants to establish a trust holding solely cryptocurrency should release a trustee from any duty to diversify and provide the trustee with the necessary indemnification. However, as noted earlier, is important to ensure that doing so does not violate any applicable laws or terms of service agreements.
It is generally not recommended that an individual share his or her pass code with others for security reasons, but once a pass code is lost it is virtually impossible to recover. Individuals with cryptocurrency should consider writing down instructions in a memorandum and storing it in a secure but accessible location, such as a safe-deposit box alongside original estate planning documents.
It may be that a specific gift of the cryptocurrency is contained within the will itself or a memorandum is prepared, to sit alongside the will, detailing instructions on how to access the funds or the private key itself.
Leaving cryptocurrency to your loved ones after your death requires more planning than traditional assets. With proper estate planning, you can simplify the process for your beneficiaries and ensure that they inherit your cryptocurrency.
Wesley Harris is an associate attorney at Farrar & Williams, PLLC and can be contacted at 501-525-4401 or emailed at [email protected] Wesley can answer any questions you have about this subject.