ESTATE PLANNING: CRYPTO CURRENCIES AND DIGITAL ASSETS
Although we all unquestionably live in a digital age at least for the past two decades and the legislatures are adopting new laws every day to reflect this reality, digital estate planning remains one of the areas where relying on state-made laws might not be enough. Laws in this area are scarce and only of a general nature. What happens with our digital assets after we die is usually controlled by private companies that store the data. For that reason, and because of the specific nature of digital assets, it is advisable to take these matters in your own hands.
What is a digital estate planning? It is a estate planning that covers any of your digital assets, including cryptocurrencies, websites, email accounts, social network accounts, cloud accounts, and all content stored or communicated trough these tools. What sets these assets apart from the more traditional ones is the fact that there might not be any person other than you who is aware of those assets or who could access them. In other words, no official register, no tax records, no bills, no paper contracts. Yet these assets may have a great value, both personal and monetary.
The National Conference of Commissioners on Uniform State Laws drafted in 2014, and revised in 2015, the Fiduciary Access to Digital Assets Act (“Act”). This Act allows the fiduciary, such as an executor of a decedent’s estate, to manage some digital property, but restricts access to electronic communications such as emails or social media accounts unless the original user specifically consented to access. Not all the states adopted this Act, although majority did. In Florida, this Act has been in effect since July 1, 2016.
The Florida statute that defines digital assets defines it broadly as “an electronic record in which an individual has a right or interest. The term does not include an underlying asset or liability unless the asset or liability is itself an electronic record.” Fla. Stat. § 740.002(9). Another Florida statute prefers directions to disclose or not to disclose digital assets to a designated recipient in an online tool over contradicting directions in a will or another instrument. Fla. Stat. § 740.003. Both the directions in the online tool or in the legal instruments generally override contrary provisions in an agreement between the user (you) and the custodian (a company that stores or processes the data). Either way, you should take affirmative steps if you want to be sure what will happen to your digital assets after you will not be able to decide for yourself.
These steps should include:
- Preparing a list of all your accounts and other digital assets. According to some sources, an average user possesses up to 90 online accounts.
- Gathering information on how to access your digital assets. Remember that listing your usernames and passwords in a will is not a good idea. That document will become public upon your death. There are other ways to effectively store this information for the executor of your estate, such as numerous programs. One master password may be stored in a safety deposit box. Another option is setting up a Digital Asset Trust and instructing the trustee how to dispose of your digital assets.
- Determining which assets should be accessed and which should be deleted. Making sure that some assets will not be accessed at all may be as important as making sure that some assets will be accessed.
- Checking what the default and optional processes are with the digital service providers. It is not clear if all digital assets may pass when their original user dies. Therefore, accessing the accounts and storing the media on some hardware may be the safest way. Be careful, as some service providers may delete your account automatically after some time of inactivity or upon learning of your death.
- Consult an attorney with your plans and wishes and choose an instrument that will implement the previous steps.
As they gain on value and usability, cryptocurrencies such as Bitcoin or Ethereum are becoming a significant part of some people’s assets, but small attention is paid to what happens with them when a person dies. The online exchanges usually do not ask you to name a beneficiary of your account. Therefore, even if you disclosed the existence of your account to your executor and provided him with access, the assets might go through a time and money consuming probate proceedings regardless. If you fail to disclose the existence of your virtual wallet or to safely store your access key, your digital currency might be lost completely. Estate planning is usually closely-related to tax issues, and the same goes for cryptocurrencies. The IRS has established that virtual cryptocurrencies are treated as personal property for federal tax purposes. Therefore if the cryptocurrency is monetized to dollars, it is a taxable income. Similar issues apply when the currency appreciates in value. Because of these specifics, special attention should be payed to cryptocurrencies during your digital estate planning.
The foregoing provides a brief overview of how cryptocurrencies and other digital assets may affect your estate planning. If you are interested in more information or in planning to ensure your wishes or those for a loved one are honored with respect to digital asserts, please do not hesitate to contact the lawyers at Chepenik Trushin LLP, Bart Chepenik, 305-613-3548, Brad Trushin, (305) 981-8889, who are competent, ready, and willing to answer your inquiries.