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Cryptocurrency is not Currency – How do we Estate-Plan for it and avoid “Finders-Keepers”?

Posted by Maria N. Jonsson | Dec 07, 2022 | 0 Comments

Cryptocurrency, unlike its name suggests, is a Digital Asset – as such, the law treats it as Property, and not Currency. This is a very important distinction when it comes to Estate Planning for such assets.

Here are a few considerations to discuss with your estate planning attorney if you own crypto, NFTs or any other digital assets:

  • Crypto and NFTs are known as “bearer assets” – just like with “bearer bonds” – whoever has possession of the “asset” is the beneficial owner of it, which makes it challenging to “leave” them to a specific someone when you die and be sure that such designated person will actually get the asset.
  • Technically speaking, when assets are administered via Trust or Will (or intestate succession), there is always someone that you designate – the Trustee, the Executor, the Estate Administrator – who temporarily takes custody of your assets in order to distribute them to your designated beneficiaries. Here – such person – being the “bearer” of the digital assets – can be deemed the actual Owner!

For that reason, it is common in Living Trusts to name a Special Trustee – a person you implicitly trust that both understands the mechanics of cryptocurrency and NFTs, AND has the moral compass to deliver such assets to your named beneficiaries. For example, if one spouse owns crypto and wants to leave it for the benefit of the other, but the other spouse does not understand how to access or manage it – that non-owner spouse can still be the Trustee of the Trust following the owner-spouse's death, with a Special Trustee being designated specifically to only manage the digital assets for the benefit of the non-owner spouse.

  • To understand the estate planning considerations for Crypto, we first need to get to know how Crypto can be accessed. Notably, its location is pinpointed via a Public Key and a Private Key. If one knows the Private Key, they can locate the Public Key, but the reverse is not possible. For that reason, letting someone know what the Private Key is, essentially gives them ownership of the Crypto account. Private keys are generally kept in Digital Wallets which in turn can be “unlocked” (accessed) by a “Seed Phrase.” Once the wallet is unlocked, the Private Key can be accessed.

So you need to know where to find the Wallet, then you need to know the Seed Phrase to unlock the Wallet, which gives you access to the Private Key, which in turn leads you to the Digital currency itself.

Locating the Wallet.  Digital Wallets can be held by a custodian (custodial wallets) or they can be non-custodial. In addition to that, digital wallets can be “hot” (stored online) or “cold” (stored on an external storage media/device, such as a hard-drive). Companies who at this time offer the services of a Custodial Wallet are:

  • Coinbase – which supports titling accounts in trust via their business platforms “Coinbase Prime”, “Coinbase Custody” and “Coinbase Exchange”; and
  • Binance – which also permits one to open an account in the name of a Trust.

However, at this time, there is no known custodian who permits a “pay on death” designation for the Wallet.

Non-custodial digital wallets can only be accessed if you leave instructions on where they can be found.

Opening the Wallet.  Once the Digital Wallet is located, the real issue of opening the Wallet is putting together the Seed Phrase which unlocks it and reveals the Private Key. Some techniques that can be utilized to ensure transfer of the Wallet and Seed Phrase to the desired individual would be to:

  • Open a Safe Deposit Box and place a cold Wallet and the Seed Phrase in that Box, and designated an authorized individual to access the Box in the event of death; or
  • To be extra-cautious, open two Safe Deposit Boxes in two different banks, and place a cold Wallet in one, and the Seed Phrase in the other – to ensure that TWO people would need to come together to access the wallet;
  • To be even more cautious, the Seed Phrase can be sectioned off and each section can be stored in a different location that can be accessed by a different trusted individual. This way, no one single individual can have access to the entire Seed Phrase and be tempted to take ownership of the underlying asset;
  • Also, one can set up a Multi-Signature Digital Wallet, whereby there can be multiple designated signers, each of whom would have their own Seed Phrase that has to be entered in a specific sequence to access the Wallet;
  • Owners of digital currency should be sure to identify such Safe Deposit Boxes on Schedule “A” of their living Trust and identify the individuals authorized to access the contents, as well as name the intended beneficiary of the contents of such Safe Deposit Box;
  • Whatever method is chosen, it would be prudent to also include reference to Digital property, and the means to identify and locate individuals or custodians with knowledge of the Wallet and/or Seed Phrase on Schedule “A” of your living trust;
  • When it comes to non-custodial Wallets, when doing estate planning one should be sure to leave clear instructions about the location of the Wallet, how to obtain the Seed Phrase, and who are the intended beneficiaries.

Another challenge for Trustees when administering Trusts that contain cryptocurrency is how to obtain date of death value of such assets – which is one of the main duties of a Trustee. The popular company that at this time is able to value 12+ cryptocurrencies, is Estate Valuation & Pricing Systems (EVP Systems):

Wills and Trusts plan for death – but what about Incapacity?

When it comes to the cryptocurrency owner's incapacity – generally that is managed by their Agent under a Power of Attorney. To that end, it would be wise to ensure that your Power of Attorney contains specific provisions giving your Agent the power to manage your digital assets. Without such terms in the document, a custodian of the Digital Wallet will not permit your Agent under a Power of Attorney access to it.

Management and control of Digital Assets (including Cryptocurrency and NFTs) is a fast-moving and rapidly evolving area. When acquiring such assets, one has to keep abreast of all developments to ensure that these assets can be accessed and go in the right hands in the event of death or incapacity.

Generally speaking, because they are “bearer assets” – the rule of Finders-Keepers will apply, so we would rarely expect to see such assets going through Probate.

To have your Trust, Will and Power of Attorney reviewed and updated to reflect your ownership of cryptocurrency or NFTs – contact our Office, we are here to help.

About the Author

Maria N. Jonsson

Founding Attorney and a Certified Specialist in Estate Planning, Trust & Probate Law by the State Bar of California Board of Legal Specialization


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Attorney Maria N. Jonsson, Esq. is a Certified Specialist in Estate Planning, Trust & Probate Law by the State Bar of California Board of Legal Specialization. The Law Offices of Maria N. Jonsson, PC is committed to providing a comprehensive and holistic analysis of your specific circumstances as they relate to Estate Planning, Probate and Trust Administration issues in California. Schedule a one-on-one discussion of your case with Attorney Jonsson directly.