The importance and planning of estate and legacy planning for crypto assets
More customers than you might realize possess cryptocurrency in some way. Some people could utilize a custodian and have accounts with four to five figures worth of bitcoin, such as Coinbase or Kraken. Those that followed the maxim “not your keys, not your crypto” may have been alarmed by the failures of multiple custodians and opted to shift their holdings onto hard wallets or into cold storage. More investors are transferring some money into cryptocurrency as we continue to see the establishment of new accounts and wallets every day.
Even though they think they have everything under control regarding custody, these investors now need assistance creating an estate and legacy plan for their cryptocurrency holdings. Younger investors frequently invest more deeply in cryptocurrency without teaching their spouses or other family members about the nature of crypto custody. Given how volatile crypto assets may be, they might believe themselves to need to be more affluent to require standard estate planning. However, careful planning is essential to guarantee that their assets are transferred to their heirs by their preferences.
Digital asset legacy planning differs from traditional asset legacy planning. In cryptocurrencies, the technological strategy frequently precedes the legal plan, especially for modest investments. For instance, even if I set up the legal framework to ensure that my daughter gets my Bitcoin when I die, it will only matter if I provide her with the technological means to manage it.
Additional difficulties with legacy planning for digital assets include regulatory ambiguity, cost basis issues, and fast innovation. Whether their funds are kept on centralized exchanges or self-custody wallets, many crypto investors have yet to consider these particular facets of legacy planning. The need for adequate legacy planning will only grow as we progress from merely purchasing crypto assets to taking part in on-chain protocols and owning tokenized equities, opening up chances for financial advisers to contribute value. Due to the potential for cryptocurrency assets to experience a considerable increase in value in a relatively short period, crypto legacy planning is particularly crucial. Even as speculation, a tiny investment might suddenly gain considerable value.
Financial advisers might start by asking their clients the following usual questions to add value to legacy planning: “Do you own cryptocurrency assets?” How are you managing those resources? Have you thought about what would happen to your cryptocurrency if you left?
Making a current inventory of clients’ assets would be the next stage. Centralized custodians provide application programming interfaces (API) and may be included in various reporting solutions. Additionally, brand-new administration and reporting systems like Kubera may already offer traditional and cryptocurrency assets in a single bundle. The customer normally prepares to pass their crypto on if they haven’t already. The adviser must assist the client in making such arrangements, as most custodial accounts still need to provide transfer-on-death features. The adviser now has even more, to offer if the customer has assets stored in multi-signature wallets, hard or soft wallets, or vaults. Advisors should assist clients in putting plans in place for transmitting seed phrases or private key data to their successors because access is sometimes more important than legal ownership. Horror tales of persons passing away without giving their keys to heirs have been told to all of us.
The crypto legacy plan, which varies from standard asset planning, strongly emphasizes education. Advisors may significantly add value by assisting clients in creating an inventory, a technology-focused legacy plan, and an education plan for those heirs.
These clients have security concerns, including security and the protection of their wallets and finances, in addition to the usual planning requirements. To give their newfound money some structure, they will need the help of an attorney, a multifamily office, and an advisor familiar with the world of cryptocurrencies. This would include utilizing some of the same structures the affluent have used for years while also including the custodial component. The goal is to safeguard assets, practice proactive tax planning, and maintain wealth while preserving access for them and their families to benefit from it.