Estate Planning and Bitcoin: What you need to know

If you follow financial news, have seen a commercial where everyone from Tom Brady to Kim Kardashian has been marketing cryptocurrency, or have heard tales from a friend or neighbor who hit it big with Bitcoin----you know cryptocurrency has become mainstream in 2023. With stories like the collapse of FTX and the volatility of Bitcoin prices garnering significant media coverage over the prior year, Bitcoin and cryptocurrency have also caught the attention of estate planners.

While planning for the transfer of a family farm or Berkshire Hathaway stock has been discussed for generations in estate planning meetings in Nebraska, Bitcoin’s relative newness and digital nature have created challenges for estate planning purposes. As a virtual asset, Bitcoin is often stored in an app on a smartphone ---heavily protected by passwords and keys---which makes it more likely that your heirs may overlook any Bitcoin or crypto account you own. 

Further complicating matters, Bitcoin Wallets do not allow the transfer of the wallet into the name of a Trust. In addition, many well-known crypto exchanges do not currently offer any beneficiary designations--- like POD (payable on death) or TOD (transferable on death). Thus, there are some important considerations when planning for the transfer of your cryptocurrency:

• Ensure that your estate plan specifically references your Bitcoin or cryptocurrency and provides for a secure transfer method to your heirs. The solution may be crafting a detailed letter of instruction to your successor trustee or personal representative with details on how to access and transfer your cryptocurrency.

• Name a beneficiary for your crypto assets in your estate plan. A beneficiary is the person or organization you want to inherit an asset. Make sure to list all your crypto assets in your estate plan, where the assets are stored, and which beneficiaries should receive them.

• You could also name a separate digital trustee in your estate plan---- and entrust this digital representative with protecting and transferring your cryptocurrency. A person with some experience, expertise, and knowledge in handling digital assets could make the administration of your estate much more efficient. 

As large-scale institutions and exchanges begin to enter cryptocurrency and new laws and regulations come into effect, it would be wise to revisit your estate plan to ensure that your nominated trustee can access and effectively transfer your cryptocurrency without unnecessary cost and delay.

If you have questions or are interested in reviewing your current estate plan, please get in touch with any of our experienced estate planning attorneys at Erickson & Sederstrom.

Bitcoins and the Law

Last year Bitcoin and other cryptocurrencies went “mainstream” with regular financial reporting of prices and tales of fortunes made or lost.  This has prompted many ordinary investors to try their hand at cryptocurrency investing.  This has fed an ever widening set of cryptocurrency products being offered to consumers and businesses alike.  These products range from Wall Street backed crypto currency exchanges like coinbase.com to initial coin offerings (“ICOs”) now being used by start-ups to attempt to bypass the regulations that normally apply to the capital-raising process.
 
The sheer exuberance surrounding cryptocurrencies and the often inaccurate depiction of cryptocurrencies as not subject to ordinary laws is fertile ground for fraudsters and high-risk unsound investment schemes.   For example, numerous market players still promote their ICOs as not subject to state or federal securities regulation despite convincing and sound conclusions to the contrary.  In fact, use of an ICO may very well expose the entity (and its individual managers) using it as a capital-raising device to potential civil and criminal charges, sanctions, and personal liability to individual investors.  
 
Due diligence requires that before you or your business involves yourself in any crypto currency undertaking that you consult with competent and experienced business counsel so you can fully understand the true risk of the undertaking.  Investors who have already lost money in a crypto currency scheme should also exercise due diligence by consulting with counsel because, under existing law, those who involved them in the scheme may be personally obligated to repay for the lost investment.