Recently, the popularity of cryptocurrency has seen a huge spike. This surge in digital currency has caused many people to begin to wonder if their estate planning documents are sufficient for this new, unfamiliar territory. If you have any bitcoins or other cryptocurrencies , it is important that estates plan for them.
The average person is not well-versed in the complexities of digital currency, and protecting digital assets can be difficult. The process for transferring cryptocurrency out of an estate can be different than that of traditional property. Digital currency must be transferred by either setting up a will or trust which includes instructions for transferring them, or through trading the currency into cash
As time goes on and more digital currencies are created, the need for estate planning with digital assets is only going to continue growing.
It’s important to note that many states don’t currently have laws specifically addressing digital assets, and the necessity of having them included in wills or trusts. It is still unclear how courts would rule on these issues if it were to arise, so we must plan while we can for whatever comes next.
The lack of explicit digital asset laws can create some uncertainty for executors and trustees, who may not be familiar with how to handle digital currencies. In the absence of a law, they may have to consult an expert on the subject in order to carry out their duties.
A digital asset protection trust is a legal arrangement in which the holder (the “grantor”) transfers their digital assets to a trustee. The trustee holds and manages the assets on behalf of the beneficiaries, who can be named by the grantor or determined by law. The trustee has a fiduciary duty to act in the best interests of the beneficiaries and must keep track of all passwords and login information for the digital assets.
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One advantage of using a digital asset protection trust is that it can help heirs avoid probate. Probate is the process of proving to a court that a will is valid and that the deceased’s property should be distributed according to its terms. If all of a person’s property can be transferred to a digital asset protection trust, they may not have to go through probate court. For example, if someone puts their car in a living trust and records a video explaining how it should be managed after their death, heirs would not have to take that vehicle through probate.
In order for this system to work properly for the client, the client must have been extremely organized and written out all passwords and login information ahead of time. In some cases, even with these precautions taken into account, an heir will need to hire a technology expert who can recover passwords or otherwise help them access digital assets stored online.
Each state has its own laws regarding digital asset trusts which apply to both state residents and nonresidents. These laws vary in terms of what is required to set up a trust, who can be a trustee, and the legal rights of beneficiaries. Some states allow for digital asset protection trusts to be created in a will or through an agreement between the grantor and trustees. Other states require that the trust be established during the grantor’s lifetime.
Some states, such as Delaware and Nevada, are beginning to recognize the importance of digital assets and are integrating them into their estate planning documents.
The way digital assets are treated in your state depends on your state’s laws, so it is important to verify with an expert or an estate planning attorney what is included in those laws.