Estate planning for investment portfolios has always been a little complicated, but it has become significantly more so in the age of digital currencies. Previously, investors could write a will and place items such as stock certificates in a safe deposit box for their next of kin, and the transfer of investments would go smoothly. There are new laws and protocols that must be followed if an investor wants to ensure that his or her digital assets are transferred safely and securely when the time comes.
Below, we’ll go over some of the ins and outs of digital asset estate planning. In some cases, the rules have remained unchanged. In others, there are new factors to consider that traditional investors may not be aware of.
2 Important Ways Cryptocurrencies Impact Estate Planning
Knowledge And Access Are Essential
Perhaps the most important factor to consider when estate planning with cryptocurrencies is ensuring that the executor of your estate is aware of which assets you have and how you can access them. According to a recent Forbes report, gaining access to these assets may be the most difficult part of the entire process.
Cryptocurrency investors are notoriously erratic when it comes to storing their digital keys and access codes. This is unsurprising given that these passwords grant full access to digital wallets. On the other hand, if you play it too safe, you risk losing the code. If this occurs, there is frequently no way to regain access, and a wallet containing cryptocurrency tokens may go permanently unused.
Pam Morgan, a cryptoasset inheritance planning expert, suggests an old-fashioned method for listing cryptocurrency keys for executors and heirs: “I’m a big fan of paper and pen.” Morgan continues, “It is critical to explain to them the types of assets, key locations, and access controls you use for security. PINs, passes, multisignature, and timelock requirements are examples of access controls.”
Legal Considerations
Even if you have a clear explanation of where your digital assets are and how your heirs can access them, if you don’t take deliberate action, you may be setting your next of kin up for legal trouble. Ideally, investors will consider both technical accessibility and legal implications. Investors who fail to consider the legal issues associated with estate planning may be setting their heirs up for lengthy lawsuits. Morgan, on the other hand, admits that “without [crypto] keys, a court order is powerless.”
Morgan advises making at least two copies of asset records and storing them in separate locations. These lists may need to be updated as frequently as once per week, especially for highly active cryptocurrency investors. On the other hand, Chicago attorney Michael Goldberg, a cryptocurrency estate planning expert, believes that traders who are only active infrequently can probably get away with fewer asset lists. “I have a pretty wide variety [of tokens],” he says, adding that he recommends keeping a list and updating it once a year.
Legally, the majority of states have enacted laws in recent years that allow executors to manage digital assets in the same way that they might manage traditional assets. This could be advantageous because executors are under pressure to liquidate cryptocurrency assets as soon as possible; this can protect them from repercussions from heirs if the value of virtual currencies falls in the meantime. Nonetheless, while the law is rushing to catch up with crypto estate planning, there is still room for growth. Tamara Curry, President of the National College of Probate Judges, believes that jurists will need to become more knowledgeable about cryptocurrencies.In Curry’s words, “The courts will become increasingly overburdened. Judges will need to be educated and made aware of what to look for when these assets are presented to them “
