Estate Planning for Clients Who Hold Crypto and NFTs

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How popular is investing in cryptocurrencies today? In a Nasdaq survey of 500 financial advisors, 86% said they plan to increase their client holdings of crypto during the next 12 months. These are clients who currently invest in this digital asset or are considering doing so.

One challenge for estate planners: it is difficult to open cryptocurrency accounts and NFTs in the name of a revocable or irrevocable trust.

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More of them are also purchasing other types of digital assets like NFTs (nonfungible tokens), digital tokens that record ownership in assets such as a photo, artwork, or record album. According to a report from Art Basel and

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74% of high-net-worth individuals purchased NFTs based on artwork at a median price of $9,000.

As digital assets become a larger part of client wealth, there are some important considerations for financial advisors. One is how clients can include digital assets in their estate plans.

For example, it is difficult to open cryptocurrency accounts and NFTs in the name of a revocable or irrevocable trust. “Our clients have generally been unsuccessful in naming beneficiaries for these accounts,” says Tracy Craig, a partner at Mirick O’Connell’s Trusts and Estates Group. “But it is likely that the ability to name a beneficiary will evolve rapidly and could soon be available.”

In the meantime, a client’s alternative may be a traditional will, which would need to go through probate, costing money and time. The client should also have a durable power of attorney that includes provisions for distributing digital assets.

Jim Lamm, an estate and tax attorney at Lathrop GPM, recommends advisors to make sure clients do the following for the legal documents:

Even if your client has valid estate planning documents, this might not eliminate all problems. Heirs and fiduciaries will need the private keys—essentially long passwords—to access crypto accounts. If not, the value could be lost, perhaps adding up to millions of dollars. According to a survey of 10,000 Americans from Wealthonly 26% said they have a list of passwords and digital assets in their estate plans.

But don’t include the private keys or passwords in the legal documents because a will becomes publicly available.

A variety of online services can upload and share information about your client’s digital assets, including Everplans, AfterVault, and Clocr. But make sure that a service has bank-level security.

“It’s vital to create good passwords, store them someplace secure, and enable two-factor authentication,” says Abby Schneiderman, co-founder and co-CEO of Everplans. “If you want to go further and the service you’re using offers authentication, you can use an authenticator app. This provides constantly changing codes that complete the login process.”

A client can also put crypto assets in custody using software or a hardware wallet. Providers include Coinbase, BlockFi, Casa, Unchained Capital, Anchorage, and Genesis.

Regardless, a client needs to make sure their fiduciaries have clear instructions for gaining access to the client’s digital assets. They also need to update this information with any changes.

Finally, it’s important to get the help of a qualified estate attorney. The law is specialized and often complex.

“Fully digital assets such as cryptocurrency and NFTs are new, and the rules surrounding their tax treatment continue to evolve,” says Pam Lucina, chief fiduciary officer and head of the Trust and Advisory practice for Northern Trust Wealth Management. “Continued regulation surrounding fully digital assets is likely, and investors should work with their advisors to prepare and evolve plans as necessary.”

Tom Taulli is a freelance writer, author, and former broker. He is also an enrolled agent, which allows him to represent clients before the IRS.


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