Cryptocurrency, Bitcoin, NFTs: Estate Planning & Your Digital Assets
Although digital assets have been there for a while, they appear to be dominating headlines recently. Perhaps one of the most popular forms of digital assets is cryptocurrency. Kim Kardashian, Elon Musk, and Mark Cuban are just some big-name players who have pushed cryptocurrency into the spotlight once again this year. If you’ve been fortunate to make money riding the crypto-wave of recent or if you hold valuable digital assets, you should know how these assets affect your estate plan.
Digital assets generally
Digital assets can be defined as anything that is stored or accessed in digital format. If you work on a computer or have a large online presence, you likely have a collection of digital assets. If you have accounts that fall into the following categories, you should start thinking about where you want these accounts to go after you pass.
- Social media (Facebook, LinkedIn, Instagram, Youtube, Twitter, etc.)
- Payment systems (Venmo, Cash App, Stripe, Square, Paypal, etc.)
- E-Commerce & marketplaces (Shopify, Amazon, eBay, Etsy, Mercari, etc.)
- Data storage (Google Drive, Dropbox, OneDrive, iCloud, Box, etc.)
- Communication (Email, instant messaging, video conferencing, SMS, etc.)
- Frequent flyer miles or loyalty rewards accounts
- Proprietary assets (unique software, NFTs, intellectual property, contracts, etc.)
An example of how these digital assets hold value is the selling of a “brand.” You do not receive anything tangible by purchasing a brand, but you are getting something of value nonetheless. The package includes, for example, social media platforms with thousands of followers, an e-commerce website with thousands of customer registrations, an app with thousands of downloads, trademarks, etc.
Here are some important steps you can take when it comes to your digital assets:
- Making a list of your digital accounts will assist your loved ones in safeguarding your memories, as well as your legacy and identity.
- Make your wishes as detailed as possible: Are there accounts you wish to shut down? Should your family know about any accounts which may have monetary value?
- Have a conversation with your executor to determine whether they are comfortable managing your digital assets. Consider naming an executor exclusively for your digital assets if they are not.
Cryptocurrency is a type of payment used to engage in online commerce. The payments are sent via blockchain, a system that encrypts and sends data through a peer-to-peer network. Because the currency is encrypted, it is tamper-resistant and cannot be accessed without a private key.
Cryptocurrency is a challenge because there is no way to prove ownership. In addition, because of the nature of encrypted currency and how these accounts are anonymous, there is no account statement or physical location you can withdraw money from.
You can bridge this gap by including a step-by-step roadmap for your family that explains how to access your assets. Cryptocurrency is still new for most people, so you will need to be as detailed as you can be for the sake of your investments. However, in this scenario, you cannot be too thorough. How you store the actual private key is up to you, but one thing is for sure: it must be kept as secure as possible. It’s a tough line to walk: you need to keep it as secure as possible, but your family must be able to access it to touch a cent of your crypto fortune. Perhaps one of the most painful scenarios you can leave your family is knowing you have inheritable wealth but not having access to it.
The legislature reacts to things after they have happened. Therefore, it is highly likely that the cryptocurrency space will remain decentralized (and therefore ungovernable) for the foreseeable future.
California Estate Planning Attorney
Like our physical assets, our digital assets may be the subject of a lengthy, expensive, and legally risky probate process if you don’t have a solid estate plan. The tech-savvy among us must take steps to modernize our estate plans, so our assets exist as productively as possible even after we no longer manage them. If you do not have an estate plan, now is the time to speak with a California estate planning attorney about protecting your wealth. Call 818-676-9572 or use our online contact form to schedule a meeting.