To avoid disappointment at the outset and be totally up front, I’m not here to announce some digital asset rebooted version of Extreme Makeover: Home Edition, although the mere thought of that show does bring a flood of youthful nostalgia my way.
I do, however, find bricks and mortar terminology useful when discussing estate planning with clients. First, you have to prepare the site, then lay the foundation, build the structure (comprising several levels perhaps), and eventually construct the roof to enclose and protect the entire structure. Sometimes, in estate planning, we build ab initio. In other cases, it’s an extension or perhaps just a much needed facelift or renovation.
So why do I mention digital assets? This is not simply a consideration for crypto enthusiasts and proponents of all things decentralisation. Digital is going mainstream, not simply by reference to the current value of BTC or ETH but also by the more widespread adoption of blockchain technology through areas like tokenisation and the use of NFTs to determine the provenance and authenticity of goods.
Digital may even mean simply the passwords to access your moderately successful side hustle business on eBay or Amazon.
So, as we move into an era of increased digitisation both in terms of how we store personal information and, of course, store value, enquiries from clients are building on how to approach digital assets from a trust and succession planning perspective. So, let’s see how the good old world of law is adapting and navigating in this space.
Wills: The Foundation
Enter the foundational piece of estate planning – the Will. A Will is not simply for old people as, sadly, it is not just the elderly who are vulnerable to kicking their mortal coil. Some might ask what a document, which derives its essential legal framework from the year 1837, has to say on digital assets. However, this is not about making bequests of the ancient family heirlooms or even preventing an intestacy scenario, but about ensuring that your cryptoassets do not end up in the digital abyss.
Without access to the access key, where is the value? Fundamentally, without a key to the safe, its contents are rendered worthless.
Lifetime Trusts: The Next Level of Protection
Now, let’s talk about lifetime trusts. The word gets thrown around, but what exactly is a trust?
In short, a trust is a legal arrangement where one person or entity (the trustee) holds and manages assets for the benefit of another person or persons (the beneficiary), in accordance with certain rules or terms.
With a trust, as with a Will (albeit in a more existential sense with a Will), you have to accept a degree of control being lost. Setting up a trust for your cryptoassets means appointing a trustee, a guardian or custodian for your digital fortune. The trustee will navigate the crypto maze, ensuring your assets are in safe hands, and held for the benefit of your loved ones.
This trust might be established with tax, asset protection and succession planning in mind, or perhaps even a combination of all these factors.
Communication: The Roof
Legal structures and documents do not serve merely as the framework for rules. If done correctly with the advisor understanding the asset class, the legal work also serves as an effective communication tool. Whether it’s a traditional family business or the family home, communication is arguably as important as the legal framework itself. What good is the structure without the roof on top? So remember, communication is the key to a smooth transition and this is no less applicable to digital assets.
Create a digital treasure map, an inventory of your cryptoassets, passwords, and access codes. Share this map with your chosen executor or trustee. It’s like passing on the key to the crypto kingdom, ensuring your heirs do not end up in a digital maze brought about less by your doing and more by your inaction.