Estate Planning: How to Handle Cryptocurrencies

Estate planningOn January 22, 2018, the Supreme Court of the United States (“SCOTUS”) held in a 5-4 decision that statutes of limitations for state law claims joined in a federal lawsuit are tolled until 30 days after a federal court dismisses the claims. This decision applies to state law claims brought in federal court under the Supplemental Jurisdiction statute, 28 U.S.C. § 1367, which enables federal courts to hear state law claims that arise out of the same set of circumstances as a valid federal law claim. The idea behind this statute is that it enables federal courts to efficiently and economically deal with related claims in a single litigation, rather than multiple litigations.

SCOTUS decided this issue in Artis v. District of Columbia, 138 S. Ct. 594 (2018). The plaintiff in that case is Stephanie Artis. In this case, Artis filed a federal employment discrimination claim in a federal court, and that court exercised its authority to hear Artis’ three state law claims[1] that were based on the same set of facts as the federal claim. When she brought the federal suit, nearly 2 years remained on the statute of limitations for her state law claims. Over 2 years later, the federal court dismissed all of her claims. 59 days after the dismissal, Artis refiled her state law claims in state court. The state court dismissed her refiled claims on the basis that the statute of limitations had expired. Artis appealed the dismissal all the way to SCOTUS, which eventually ruled in her favor, holding that the statute of limitations for her state law claims were tolled for the time period while they were pending in the federal court.
           
This decision will have a noticeable impact on litigants in all 50 states, including Illinois. The types of claims affected by this decision can potentially live for years after the statute of limitations specifically imposed by the Illinois legislature. Now, courts and litigants must be aware that state claims joined in a federal action can potentially be refiled years after the statute of limitations was supposed to end. Plaintiffs are a big winner in this decision because they might have the opportunity to re-litigate stale state law claims. Defendants are disadvantaged by this decision because they will have to prepare to defend against claims for longer than Illinois would normally provide. Additionally, older claims make it more likely that the defendant could lose important evidence.
           
Statutes of limitations are highly important to both plaintiffs and defendants. Both sides must be sure to adhere to the time periods for when claims can be filed. Going forward, plaintiffs will serve themselves well to recognize the nuances of limitations periods for claims brought in federal court, since this decision will almost assuredly be a detriment to future litigants that fail to pay close attention to the affects tolling can have on statutes of limitations.

[1] In the case, the claims were derived from District of Columbia law. Even though D.C. is not one of the 50 states, this post refers to the claims as “state law claims” to avoid confusing the audience and to indicate that this decision also applies to all 50 states. ange it (including to one in the future). Plus, you can click to update the title and author, and even add category tags below.

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.