Almost everyone has some form of digital assets or online accounts, but these accounts are not always something people consider when they think about estate planning. However, a complete estate plan should account for the handling and distribution of digital assets both upon incapacity and after death. Estate planning for digital assets includes identifying the nature of the digital assets, deciding who will have the legal authority to access those digital assets, and determining how those digital assets are to be distributed upon death. Stacey recently wrote this blog post discussing the relationship between legacy contact settings in online accounts and estate planning. This post discusses estate planning considerations for a type of digital asset that does not typically provide for legacy contact settings: cryptocurrency.
Bitcoin and other cryptocurrencies have lost a lot of value recently, but that does not mean that cryptocurrency is going to disappear. And, even at a diminished value, cryptocurrency still has value worth transferring to beneficiaries, either via probate or via beneficiary designation. Assets that transfer via beneficiary designation are known as “non-probate” assets, because the assets will be transferred to the beneficiary named on the account upon death by operation of that beneficiary designation. If there is not a beneficiary designation on an account — and some types of cryptocurrency may not allow for a beneficiary designation — then the asset will be distributed via probate to beneficiaries in a will, or to intestate heirs, if no valid will exists.
In planning for the distribution of cryptocurrency upon death, it is important to account for the unique nature of the asset. A cryptocurrency is a type of digital asset that can circulate without involving a central monetary authority, like a government or a bank, and is stored in a digital ledger which uses blockchain technology. A person purchasing a cryptocurrency receives a unique digital key, which can be stored in a virtual wallet. The key is required for anyone to access the associated cryptocurrency, whether that person is the original purchaser, the Personal Representative of an estate, or a beneficiary.
Estate planning documents distributing cryptocurrency should identify the existence of the assets, designate a beneficiary to receive the assets, and – importantly – provide a way for a fiduciary to access the digital key. Just like a house key, digital keys can and do become lost. Without the key, there is no way to access the digital account holding the cryptocurrency. This holds true for both the original account holder and for the Personal Representative of an estate who is charged with distributing the estate’s assets. While it is never a good idea to include the digital key in estate planning documents themselves – a will, after all, is a public record available in the probate court file – it is important to provide fiduciaries with instructions for how to locate or otherwise access the key.
Planning for digital assets is an important consideration in any estate plan in 2022. Do you have questions regarding how your digital assets will fit into your estate plan? We’re happy to chat!
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