Cryptocurrencies make up a significant portion of crypto investor’s portfolios, but how do we conduct estate planning for these digital assets? We speak to Gladys Tan to find out more.
The world of finance is constantly evolving, and as technology advances, our assets are no longer limited to the tangible. Our everyday lives are increasingly intertwined with digital assets, from social media profiles overflowing with memories to photos and videos capturing precious moments.
Even more recently, the rise of blockchain technology has introduced a whole new class of assets. Since the invention of Bitcoin by Satoshi Nakamoto in 2008, cryptocurrencies and other blockchain-based assets have become a reality for many.
For crypto investors and enthusiasts, these digital assets – tokens, coins, NFT tickets and art – represent a valuable part of their financial portfolio. They are meticulously recorded on a secure and transparent digital ledger, the blockchain. The question then arises: how do we ensure these digital assets are managed effectively in the event of our passing? Much like traditional assets, proper estate planning is crucial for digital assets as well.
However, with the regulatory landscape surrounding cryptocurrencies still under development in many regions, navigating the legalities of writing a will and incorporating digital assets seems like a complex and uncertain territory. Finding qualified legal professionals to act as executors for such wills adds another layer of complication.
That’s where advisors like Gladys Tan come in. We had the opportunity to speak with Gladys, a licensed Estate and Succession Practitioner, about the process of making a will when it comes to estate planning for digital assets.
In her role, Gladys goes beyond traditional financial advice, guiding others on how to manage digital assets as part of a comprehensive estate plan. Driven by a passion for financial literacy, she believes everyone deserves access to top-tier financial guidance and the tools to make informed decisions about their finances.
In this interview, we leverage Gladys’s wealth of knowledge to explore how crypto investors can prepare for the unexpected through proper estate planning for digital assets, and how investors can make their will under estate planning services.
What is estate planning for digital assets, and why is it important?
Estate planning for digital assets involves planning for the management and distribution of digital assets after one pass away or become incapacitated. Digital assets can include everything from online financial accounts and cryptocurrency holdings to social media profiles, digital photos, and email accounts.
Some of these assets hold significant financial value while others hold sentimental value. Without a clear plan in place, accessing these accounts could be difficult or impossible for your loved ones, potentially leading to loss of access to important information or assets. Proper estate planning also ensures that your digital assets are transferred smoothly to your designated beneficiaries according to your wishes, avoiding potential legal complications or disputes among family members.
Tip: When crafting an Estate Plan for digital assets, one can consider engaging a Digital Facilitator to locate and access your digital accounts; and allowing the Digital Facilitator to manage and transfer your digital assets aids in proper tracking and determining where sensitive digital assets should be stored before they are dispersed or destroyed, as well as who can benefit from them.
What happens to a person’s digital assets if no estate planning was done, or if they did not make a will, before they pass on?
The absence of estate planning for digital assets can lead to significant challenges and complications for the deceased’s loved ones. Without clear instructions or designated beneficiaries, accessing and managing digital assets becomes a daunting task, often resulting in confusion, stress, and financial loss. Without a will or other estate planning documents addressing digital assets, the distribution of these assets would typically fall under the jurisdiction of intestacy laws, which may not align with the deceased’s preferences or the needs of their beneficiaries.
Did you know? The lack of clear guidance on the management and disposition of digital assets can give rise to legal and privacy concerns. Family members may face challenges in navigating legal processes to gain access to digital accounts, and the absence of privacy safeguards could expose sensitive personal information to unauthorised individuals.
Digital assets like crypto and NFTs are often stored on hot or cold wallets. How will the attorney or trustee service gain access to these wallets?
If they are shared between attorneys and client, will this compromise the security of a wallet? To the best of our knowledge, gaining of access to those assets will only be made possible by the owner (testator/testatrix) providing the access key/passcode to his/her administrator or executor/trustee.
Inevitably, there will be risks involved whenever there is sharing of access keys/passcode to a third party; these include misappropriation of information, leakage, phishing or hacking, loss of information, and potential internal sabotage or collusion for illegal rewards, which could lead to potential harm. However, there are also legal remedies available should the third party intentionally misuses that information.
Tip: One way to mitigate these risks while still allowing attorney or trustee service to manage digital assets effectively is to utilise a digital asset management solution that allows for secure access control and delegation of permissions. This way, the owner can grant limited access to legal representatives without compromising the security of the wallet.
Additionally, providing detailed instructions and documentation regarding the location and access credentials of digital wallets in a secure manner can help ensure that attorney or trustee services can fulfil their duties without compromising security.
Digital assets are a relatively new asset class that is not fully endorsed by the government. What are some grey areas you foresee with estate planning for digital assets?
In addition to the previously mentioned concerns, valuation poses a significant challenge in estate planning for digital assets. Unlike more traditional assets with easily ascertainable values, determining the worth of digital assets, especially volatile ones like cryptocurrencies and NFTs, can be complex.
This process often demands specialised knowledge and expertise, potentially leading to disputes or discrepancies in valuation, which may complicate the distribution of assets. Furthermore, the international nature of digital assets adds another layer of complexity to estate planning.
Digital assets are frequently held and traded across borders, which can raise jurisdictional issues. Variations in laws, regulations, and cultural norms pertaining to digital assets among different countries can further complicate the administration and distribution of assets, particularly in cross-border estates. Navigating these complexities requires careful consideration and may necessitate legal expertise to ensure compliance with relevant laws and regulations across jurisdictions.
Tip: Addressing these grey areas requires proactive planning, including updating estate planning documents to include provisions for digital assets, utilising secure storage and access solutions, and staying informed about relevant legal and regulatory developments in the field of digital asset management.
Consulting with legal and financial professionals experienced in estate planning for digital assets can help navigate these complexities and mitigate potential risks.
How would a trustee service or trust management for one’s digital assets look like?
Managing digital assets through a trust involves establishing a legal entity, often referred to as a digital asset trust, to hold and administer these assets on behalf of beneficiaries. For example, a trust company like PreceptsGroup would begin by identifying and transferring ownership of the client’s digital assets to the trust.
They would then assess the value of the assets and provide instructions on handling them, including the creation of a Digital Asset Memorandum (DAM) and Digital Assets Clauses within the trust agreement. PreceptsGroup would also educate the client on the role of the Digital Facilitator, associated risks, and indemnity from the client’s estate for any claims against Precepts.
The client would fill out the DAM and sign off, ensuring access codes are securely stored, either in a sealed envelope or encrypted storage device. Given the evolving nature of digital asset management, PreceptsGroup anticipates further refinement of their approach based on future experiences and industry developments. This ensures that they can adapt and continue to provide effective management of digital assets within the framework of a trust.
Tip: PreceptsGroup recommends storing the DAM with the client’s Will and access codes in a secure, undisclosed location.
Digital assets are constantly evolving. How do you think estate planning for digital assets would evolve to address these issues?
Estate planning frameworks must continuously adapt by expanding their definitions and categories to encompass emerging digital assets. This evolution demands that estate planners remain abreast of evolving digital asset trends and technologies to effectively address the diverse range of assets held by their clients.
As governments and regulatory bodies formulate policies and regulations governing digital assets, estate planning strategies must prioritise compliance with these evolving legal frameworks. Ensuring adherence to regulations is crucial for safeguarding clients’ interests and minimising legal risks in managing digital wealth.
We believe that through proactive efforts and adaptability, estate planning professionals can guide clients through the complexities of managing and transferring their digital assets securely and effectively in today’s dynamic digital landscape.
However, given the intricate nature of legal recognition surrounding digital assets, many, including PreceptsGroup, may adopt a cautious approach, waiting to see how legal frameworks evolve before fully implementing certain strategies.
Do you think Web3 technologies can play a part in improving the planning process of asset transfers?
Absolutely. For instance, the transparency can help ensure the integrity of estate planning documents and reduce the risk of disputes or fraudulent activity. Beneficiaries can have confidence in the accuracy and authenticity of the information recorded on the blockchain.
Smart contracts, on the other hand, can automate various aspects of the estate planning process. For example, smart contracts can automatically execute the transfer of digital assets to designated beneficiaries upon the occurrence of specified events, such as the death of the estate owner. This automation can streamline the distribution process, reduce administrative burden, and minimise the risk of human error.
Overall, leveraging Web3 technologies like blockchain and smart contracts can revolutionise the estate planning process by improving security and trust as well as cross-border capabilities. Tip: However, it’s essential to ensure that these technologies are integrated thoughtfully and in compliance with relevant legal and regulatory requirements to maximise their benefits while mitigating potential risks.
As a person that holds cryptocurrencies and NFTs, do you think I should start on estate planning for my digital assets? Why?
If you have read this far, we certainly hope you have answered YES to this question! Engaging in estate planning for your digital assets is essential for protecting your wealth, ensuring access and control over your assets, safeguarding your privacy and security, and minimising legal complications for your loved ones.
It’s a proactive step that provides peace of mind and ensures that your wishes are carried out effectively in the future.
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