Estate planning involves making plans for how to manage and administer a person’s assets after their death. These assets can include land, tangible property, intellectual property, stock ownerships, etc. Nowadays, a person’s assets may include ownership of any cryptocurrencies, and attorneys should take note of this recent development when creating a plan for a client’s estate.
In the last few years, cryptocurrencies have exploded into national spotlight. Generally, cryptocurrencies are decentralized, digital platforms for conducting various types of transactions. The most popular cryptocurrency is Bitcoin, while other notable cryptocurrencies include Ether, Litecoin, and Ripple, among many others. Cryptocurrencies have significantly increased in value recently. In just the past year, Bitcoin’s value jumped over 450%, reaching a peak of nearly $20,000 per unit at one point. Amidst plenty of skepticism, there is a large amount of optimism that cryptocurrencies will continue to increase in value as they break into the financial mainstream.
Cryptocurrencies are stored within digital “wallets,” which are essentially online platforms in which the user can store cryptocurrencies under their created account. The only way to control the actual currency is to gain access to the account holding the currency. However, the plethora of wallet platforms and the secrecy that some strive to maintain can make it difficult for the administrator of a person’s estate to track down any cryptocurrencies the person may own. As Michael Alan Goldberg discusses in the February 2018 issue of the Illinois Bar Journal, the potential value and increasing popularity of cryptocurrencies urges estate planning attorneys to investigate whether the deceased person (“decedent”) owned any at the time of death.
In some instances, the administrator of a decedent’s estate may not know if the decedent died while owning any cryptocurrencies. Goldberg discusses a few signs indicating that the decedent may have owned cryptocurrencies at the time of death. One indication is if the decedent’s personal or professional workspace contained equipment necessary for “mining” cryptocurrencies. “Mining” refers to the process of using high-powered computers to solve complex mathematical equations which can yield a single unit of cryptocurrency. Miners have equipment that can look like a normal computer, but with improved specifications, such as multiple video/graphics cards and better cooling systems. Additionally, miners may use equipment known as an Application Specific Integrated Circuit (“ASIC”), which is a computer system that operates solely to mine for cryptocurrencies.
Another indication of cryptocurrency ownership is if the decedent’s digital history contains references to cryptocurrency, such as digital wallets or mining software installed on the computer, or billing statements showing cryptocurrency purchases. However, such information may be difficult to obtain, since it might require knowing the decedent’s username and password for potentially multiple cryptocurrency platforms.
Goldberg also provides those who currently own cryptocurrencies with suggestions for ensuring that, upon death, the administrator of the estate can easily and efficiently report on any such holdings. Cryptocurrency owners should mention the ownership to a trusted family member in order to simply get the information out there. Owners should also keep the access information for digital wallets stored in a safe location, such as on a thumb drive kept inside of a safe deposit box. Additionally, owners should keep track of the amount and type of cryptocurrencies they own, along with dates of acquisition. Doing so is important for tax purposes.
Given the growing popularity of cryptocurrencies, prudent estate planning attorneys should ask clients about cryptocurrency ownership and familiarize themselves with strategies for distributing cryptocurrencies upon the client’s death. The attorneys at the Sherwood Law Group pride themselves on being innovative and up-to-date with the rising trends in technology. As such, we will work to ensure that all of your assets, including cryptocurrencies, will pass to the intended beneficiaries in accordance with the client’s wishes.