Cryptocurrencies and non-fungible tokens (NFTs) are becoming a bigger part of the investment world as more and more people buy these assets. It is important to take these digital assets into account in your estate plan so they will pass to your loved ones at death, just like more traditional assets. Crypto and NFTs, however, can present challenges to securing, transferring, protecting and gifting family wealth. New strategies are evolving to address this growing demand for family planning and tax planning with these types of assets.
There are currently many different cryptocurrencies and NFTs. Right now, the top cryptocurrencies are Bitcoin, Ethereum, Binance Coin, Tether and Solana, and they make up a large part of the trillion-dollar market value. An NFT is a unique, collectible, tradable digital asset on the blockchain, sort of like digital art, a photo or a video game avatar, that can only be purchased on an NFT marketplace through a bidding process. For example, you can purchase virtual land and real estate in the form of NFTs. In November 2021, someone paid $450,000 to be Snoop Dogg’s neighbor in the metaverse. Sales of NFTs jumped to more than $17 billion in 2021, demonstrating a growing desire for these collectibles.
Track Your Cryptocurrency and NFTs
Cryptocurrency is accessed through a private key, which is a series of alphanumeric characters known only to the owner and stored in a digital wallet or in cold storage. Whoever has the private key can buy, sell and use the digital currency. Your family or fiduciary must know that the cryptocurrency exists, where to find the assets, and what to do with them. One option is to share the seed phrase and private keys with your fiduciary. Another option for safe tracking is to place your crypto-assets and NFTs in custody, like a software application or hardware wallet. Companies offering digital-asset custodian services include Coinbase, BlockFi, Casa, Unchained Capital, Anchorage and Genesis. A third more old-fashioned option is to make a schedule of your digital assets for your fiduciary and list the login protocols for each account on whatever cryptocurrency exchange you use.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Similarly, NFTs can only be accessed with a password or personal key. Like crypto, your passcode or personal key must be shared with your fiduciary in order for it to be passed down. A digital legacy (an organized, updated list of your digital assets and the relevant related information and passwords a fiduciary will need to access them) can be a good place to keep this information.
Ultimately, you need to be sure that the details of the ownership of the NFT and cryptocurrency, including the private keys and passwords to access the digital wallets, are accessible to the fiduciary – otherwise, the cryptocurrency and NFTs could be lost forever.
Cryptocurrency, NFTs and your Estate Plan
It is currently difficult to open cryptocurrency accounts and NFTs in the name of a revocable or irrevocable trust. However, wallets do exist that allow you to open an account in the name of a trust, or you can try to name a trust as a beneficiary of your account. This option is only available if the company handling your account allows it. As of the time of this article, our clients have generally been unsuccessful in naming beneficiaries for crypto accounts. It is likely that the ability to name a beneficiary will evolve rapidly and could soon be available.
If there is no trust account and no named beneficiary, then your crypto accounts will pass as part of your probate estate under your will. You should make sure that your will, trust and durable power of attorney include digital asset powers for the fiduciary handling your estate. It is also important to know if your state has adopted either the Uniform Fiduciary Access to Digital Assets Act (UFADAA) or the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). Of the 50 states, 46 have adopted one of these two laws. UFADAA and RUFADAA make it easier for your loved ones to manage your digital assets both during incapacity and after death.
Conclusion
The estate planning and tax issues surrounding NFTs and cryptocurrency are complex and continue to evolve. In upcoming articles, we will address the tax issues concerning these assets, as well as some planning techniques.
Tracy A. Craig is a partner and chair of Seder & Chandler's Trusts and Estates Group. She focuses her practice on estate planning, estate administration, prenuptial agreements, guardianships and conservatorships, elder law and charitable giving. She works with individuals in all areas of estate and gift tax planning, from testamentary estate planning and business succession planning to sophisticated lifetime leveraged gifting techniques, such as grantor retained annuity trusts (GRATs), intentionally defective grantor trusts, family limited liability companies and qualified personal residence trusts (QPRTs). Tracy serves in various fiduciary capacities, including trustee and personal representative (formerly known as executor). She also works with clients on issues facing elders.
Emily Parker Beekman is a Wealth Planning Advisor at CI Eaton Private Wealth in Boston. She works with clients and their advisors to develop and implement their estate planning, wealth transfer and charitable planning strategies. Prior to entering the wealth management field, Emily spent 10 years as a practicing trusts and estates attorney, where she assisted clients and generations of families regarding estate planning, estate and gift taxes, probate law, probate avoidance, estate and trust administration, philanthropy and specialized in estate planning for disabled persons, guardianship and conservatorship matters and long-term-care planning and other elder law matters.
-
Six Steps to Take if You've Recently Inherited Money From a Loved OneIt’s important to deal with the emotional aspect first before tackling the financial one.
-
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
-
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
-
Why It’s Time to Give Bonds Another Look
Yields are much more attractive now, but you should use discretion to find the bond allocation that’s best for you.
-
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
-
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
-
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
-
Four Easy Ways to Get Yourself Fired
Being a standout on the job can sometimes be as simple as showing up to meetings on time, responding promptly to requests, doing your homework and not being a jerk.
-
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
-
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
