This article was first published in Issue 5 of the 2022 STEP – Advising Families Across Generations Journal.
In the last few decades, not much has changed as far as asset classes that need to be considered in an estate plan. You always had your cash, equities, fixed income, real estate, commodities, futures and other derivatives. All of these have been around for many years. Now cryptocurrencies can be considered their own asset class, which continues to evolve almost every few months. Bitcoin was created in 2009, and became extremely popular over the last 10 years as its value soared. Ethereum, a much more sophisticated blockchain appeared in 2015, shortly after creating the possibility for NFTs, which saw their popularity explode in 2019 in the Ethereum blockchain. Today many alternative blockchains exist, expanding even into their own decentralized exchanges, with investors speculating large investments that have the potential to leave significant estate complications.
These rapid changes challenge our dated practices and antiquated processes. Many professionals steer away from the conversation, avoiding the question with clients if they have any digital assets, how are they secured, and who has control? Is the executor of the estate capable of dealing with these assets?
I’m not suggesting all our estate planning advisors need to be fully versed in these investments, reading technical whitepapers on new altcoins, however, we also do a disservice to our clients without investigating the potential issue and giving appropriate advice.
In a world of NFTs being traded, new coins being minted as a daily occurrence, it can be overwhelming to get started, but it doesn’t need to be. Understanding the very basics will get you far enough to give advice to your clients, or to point the administration these assets in the right direction.
All digital assets have an aspect of control, it could be domain names, online businesses, an influencer with an Instagram, YouTube or TikTok account that needs to continue. Who has access to these assets, who can login, and where is the information stored? The same issues exist for cryptocurrencies. There is a wallet address, which can openly show account activity, and a key or password to secure it. Depending on the blockchain used, this type of security can vary, but there is always some form of authentication. Store this in a safe place, and share that location with the executor, this is the most important part. Most of the time, it really is that simple.
As estate planning and administration professionals, it is important we maintain an understanding of these assets, can identify the risks for clients who may hold these types of assets or give enough advice to direct the administration of them. As this new asset class continues to grow, it is only going to become more common for clients to hold these assets, either as a speculation, diversification, or perhaps even as their own business operation. We need to be prepared advise our clients, changing as the market continues changing today. Who knows what the next big investment after NFTs? All we can do is be prepared with what we know today.
