Planning for Crypto and NFT Assets in Estate Plan

People generally don’t like to deal with their own mortality. However, assets need the protection of an estate plan. If they are digital assets, planning is even more important. According to a recent article from nft.now titled “What Happens to Your Crypto and NFTs When You Die?”, Bitcoin’s total circulation is unlikely to reach its stated limit of 21 million due to early adopters who either died without an estate plan or lost their private keys and access to their bitcoin permanently.

The challenge of digital asset distributions is built into the decentralized nature of the blockchain. The core of the Web3 security is not to give away private keys, even to friends or loved ones, since there’s no centralized authority to address any wrongdoing. Striking a balance between security and accessibility about crypto asset management and inheritance is still an evolving process.

Estate planning attorneys know doing nothing is the worst thing to do. While state laws account for intestacy (what happens when there’s no will), and state law will be applied by the court to distribute assets if there’s no will, one option is to put digital assets into a will. However, there are potential pitfalls.

A will becomes a public document during probate. If the purpose of owning crypto is to keep the existence of the crypto wealth private, a will is not the best option. Wills are useful for many assets, but in the eyes of many, trusts are the preferred means of transferring crypto assets.

Managing digital inheritances with trusts offers many benefits, since the trusts bypass the courts and do not become public documents. Trusts are managed by a trustee, during life and after death.  Therefore, the trustee can act quickly if managing NFTs or crypto. The volatile nature of cryptocurrencies makes speed and easy access a necessity to protect digital fortunes.

When setting up a trust to manage cryptocurrency or NTFs, be sure that the trustee is well-versed in digital assets. If they don’t know how to manage your wallet, the assets could be lost. One means of overcoming this is to add a provision in the trust to allow the trustee to hire someone who has expertise with cryptocurrency and NFTs, so they will be properly managed.

Trusts do have some vulnerabilities. Estate planning for crypto requires some sharing of private keys or transferring digital assets. However, the typical crypto investor is usually loathe to hand over this information. It may be more acceptable for them to leave behind instructions on where the trustee can find the information. However, this creates another layer of vulnerability.

Solutions to the issue of digital asset dispersal in the event of incapacity or death are still evolving. There are a number of commercial solutions, some of which are as technical to the layperson as cryptocurrency is to the non-user.

An experienced estate planning attorney will be able to guide you in planning for digital and traditional assets, so they are not lost in the real world or in cyberspace. Prior planning is needed to protect wealth, whatever form it takes.

Reference: ntf.now (Oct. 27,2022) “What Happens to Your Crypto and NFTs When You Die?”