Cryptocurrency, Digital Assets and Estate Planning
Did you hear about the cryptocurrency-exchange founder who was the only person with the password to a digital wallet worth $190m of client funds, and suddenly died without having shared the password with anyone? Well – if you didn’t, here is an article (one of many): Crypto exchange customers can’t access $190 million after CEO dies with sole password – MarketWatch He essentially has locked out all these customers from ever accessing their money – possibly until someone can identify and crack his password with future technology.
Cryptocurrency. Non-fungible tokens (NFTs). Blockchain. Digital Wallet.
Until the recent past, these terms did not exist in mainstream conversations. Although they have been around for quite a long time — and this is old news to many individuals who are trailblazers in the tech sphere or who are early adopters — most individuals did not have to think about digital assets when planning their estates.
Today, you may own digital assets or know someone who does. In fact, if you have a Facebook account, PayPal account or a website, you have a digital account and possibly digital assets.
If you own any of these assets, they are part of your estate and all the same rules of descent and distribution apply to them. This means that you must plan for their collection and distribution accordingly.
Definitions Guided by RUFADAA (Revised Uniform Fiduciary Access to Digital Assets Act)
The RUFADAA was enacted to provide a mechanism for fiduciaries to access your digital information, whether the assets are in a Will, a Trust instrument, or pass via intestacy. Prior to its passage, neither common law nor statutory law (in most states) clearly authorized a fiduciary to collect digital assets, close digital accounts or make an inventory of either.
Digital assets include cryptocurrency and non-fungible tokens (NFTs). They may be held in digital accounts, such as a digital wallet, or the password may be held on a digital device, such as a USB drive or a laptop’s hard drive.
It is essential to understand the three distinct categories (i.e, digital asset, digital account, and digital device) in order to properly plan for collection and distribution of your digital assets.
Estate Taxes
Estate and gift taxes are based on the value of the property transferred at the set point in time, whether at death or upon the date of the gift. Digital assets and accounts –- whether cryptocurrency, NFTs or otherwise –- would be valued in the same way to determine whether the estate is subject to State or Federal estate taxes.
Established cryptocurrency or other digital assets that are tied to a price index may be easier to value in real time. However, assets that are not tied to a price index – whether emerging cryptocurrency or NFTs – may be more difficult to accurately value for tax purposes. For such assets, any estate or gift tax valuation may require an appraiser who has expertise in digital assets to provide an accurate valuation.
Planning for Distribution of Digital Assets
You should clearly identify the type of digital assets that you own, how they are accessed and the approximate value. The RUFADAA does not direct distribution of your digital assets, digital accounts or digital devices; it is up to you to decide who receives your digital assets and provide for each as part of your estate planning.
It is important to discuss this information with your attorney to include the proper language in your estate documents, whether your Will or a Trust, to make proper distribution of such assets.
