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Category: Estate Planning

February 14, 2022

Cryptoassets and Estate Planning

Roxy Araghi

The value and popularity of cryptoassets – a term that comprises everything from Bitcoin to other cryptocurrencies and includes nonfungible tokens (NFTs) and utility tokens – has grown exponentially in recent years. In November 2021, Bitcoin reached an all-time high of over $65,000. In March 2021, Christie’s sold a fully digital, NFT-based work of art for $69.3 million. Many people are paying attention to the increasing value of cryptoassets and are acquiring cryptoassets to hold for their own investment. It is now easier than ever to obtain cryptocurrency through popular apps, such as Venmo or PayPal. The internet has made available step-by-step guides teaching how to acquire NFTs and other tokens. Whether you currently hold any cryptoassets or plan to acquire them in the future, it is crucial to consider how these assets will be managed in the event of your incapacity or disability during your lifetime, and it is necessary to decide, while you are living and able, how you intend for these assets to be distributed upon your death.

Custody

Cryptoassets are accessed through “public keys” and “private keys.” A public key is used to receive cryptoassets, and a private key is used to send cryptoassets. Cryptoassets are bearer  assets, like cash, meaning that the holder of the private key is presumed to be the owner, just as a person is presumed to be the owner of cash in his or her physical wallet. The private key is held in a “wallet,” generally a piece of software stored in one of several ways: (1) on an online exchange, (2) on a hardware wallet, (3) on a mobile wallet, or (4) on a local software wallet. Each of these methods is controlled by a pin or password, or both.

Access

The owner of cryptoassets should draft a memorandum or letter, to accompany their estate planning documents, that specifically outlines the type, location, and means of access to these assets. The memorandum should say where the necessary passwords and pins can be found. Password information and pins should be stored separately from the memorandum itself.

Authority to Handle

In addition, to ensure the assets can be managed by a fiduciary in the event of the owner’s incapacity or death, the owner’s power of attorney, will, and any trust the owner has established should grant the fiduciary with the express authority to access digital assets and online accounts, including digital currency and cryptocurrency exchanges. The language in each controlling document should specifically grant permission to the custodian of cryptoassets to provide the fiduciary with access to the owner’s cryptoasset accounts, including the content of electronic communications to and from the exchange.

Title

Whether cryptoassets can be held in the owner’s revocable living trust depends on how they are stored. If held on a crypto exchange, the exchange may allow for creating an institutional account, akin to a bank account, that will hold the trust’s cryptoassets. This should be done with caution, however, and an understanding that transferring the assets to the institutional account means relying on the exchange to safeguard the cryptoassets in its wallet. An owner selecting an exchange to take custody of cryptoassets for a trust should find a U.S.-based exchange that is well insured and has high security standards.

In certain circumstances, it may be advisable to form a limited liability company to hold title to and manage cryptoassets.

Fiduciary Duties

Choosing a fiduciary – an agent under a power of attorney, a trustee of a revocable or irrevocable trust, a personal representative under a will – should always be done with careful consideration. This is especially true where cryptoassets are concerned; once the fiduciary gains access to the account, there is limited oversight of the fiduciary’s activities with regard to the assets held in the account. Another factor to consider is that a fiduciary who accesses the cryptoassets, and who later resigns or is replaced, may still be able to access the account through the password information that was previously used. The owner should consider granting the fiduciary the authority to change any passwords and pins that the fiduciary determines could be compromised.

The owner’s estate planning documents should take account of the obligations imposed on fiduciaries by prudent investor standards. Generally, such standards impose a duty to diversify investments. If cryptoassets are a large part of a financial portfolio initially, or become a large part of the portfolio through a rise in their value, such that their value is or becomes disproportionate to the owner’s other assets, the controlling document should provide guidance to the fiduciary as to whether the fiduciary may retain the assets or if he or she is expected to rebalance the portfolio. The owner may want to consider as fiduciary someone with specialized knowledge in cryptoassets who can be trusted with assessing the risk of holding a cryptoasset.

It is also critical for the owner to consider the fiduciary’s ability to access the technology that manages the cryptoassets. During the owner’s lifetime, the owner should sit down with his or her fiduciary and go through each step that is required to access a digital asset or digital currency account. This is vital to ensuring that the fiduciary can gain control of the assets when it is necessary.

Conclusion

The owner of cryptoassets should discuss with their fiduciaries and with their estate planning lawyer the specific types of assets that they hold and their current forms of storage. The owner should also provide the estate planning lawyer with an inventory of the cryptoassets. We recommend that our clients review their estate planning periodically to evaluate whether any revisions are in order. That review should include evaluation of changes in the value and form of assets as a result of acquisition of cryptoassets.


October 7, 2021

COVID-19 and the Rise of Electronic Signatures

Pasternak & Fidis

Since early 2020, fewer face-to-face transactions have been possible because of mandatory social distancing. These restrictions changed the way lawyers and clients handled contracts and other business and personal transactions. The remote work environment reduced ink-to-paper signatures and increased the use of electronic signatures for contracts. Parties to a contract use the click of a […]

October 7, 2021

Avoiding Probate with the Right Plan

Christina K. Scopin

Often, when meeting with a client to discuss their estate planning, one of the first questions is, “How can I avoid probate?” Probate can be a source of anxiety for clients who want to avoid imposing on their loved ones what they envision as a long list of cumbersome tasks after their death. Probate is […]

May 20, 2021

Is Your Estate Plan Consistent with the Terms of Your Premarital Agreement?

Stephanie Perry

A premarital agreement addresses a couple’s rights and obligations to one another when their marriage ends by divorce or death.  A recent Virginia Circuit Court case, In re: Algabi v. Dagvadorj, et al., highlights the importance of ensuring that a decedent’s estate plan is consistent with the terms of his or her premarital agreement; or, […]

May 18, 2021

The Secure Act: Elimination of the Stretch Option for Certain Beneficiaries of Inherited Retirement Assets

Micah G. Snitzer

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) took effect January 1, 2020, revising federal rules that govern the administration of qualified retirement plans (e.g., 401(k) and 403(b) plans) and IRAs.  Among the changes effected by the new law is the shrinking of the class of beneficiaries who can stretch out their […]

November 10, 2020

Raising the Bar for Diversity, Equity, and Inclusion

Anne W. Coventry

Having served for 10 years on the Council for the Estate and Trust Law Section of the Maryland State Bar Association, I became Chair at the end of June. It is both an honor and a privilege to serve, and it is not lost on me that my term takes place during a worldwide health […]


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