Estate planning, digital assets and cryptocurrency [Elder Law]

Recently, I have come to know some terms through contacts with clients and other professionals. They include bitcoin, cryptocurrency, block chain technology and NFT (Non Fungible Tokens). I was already familiar with a related topic — digital assets — the subject of a Pennsylvania law passed in 2020 with the jaw breaking title, the Pennsylvania Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA).

The simplest way to explain the popularity of these issues is to relate them to our increasing dependence on on-line technology and the avenues this dependence opens both to opportunity and abuse. To those outside the cryptocurrency world, there is an entirely different approach to money and the transfer of assets than what we have traditionally understood since we first accepted cash, then checks, then credit and debit cards, then ACH debit and similar on-line transactions to today’s virtual world.

One question we might ask is how far this progression will go and how popular it might become. Another question is, assuming this form of virtual currency continues to progress in use, how can these virtual assets be transferred to succeeding owners and succeeding generations such as through their estate plans. May the information be contained in an estate plan by will or living trust and how could this be done without losing the secure access?  One hint is, if the access is divided among many sources but could be accessible to the eventual user, would this help?

How secure is cryptocurrency and, if it is extremely secure, how can the intended succeeding owners obtain access when the asset is supposed to be transferred? Apparently if you lose the key, it is gone forever. For people who may have difficulty locating access to documents and emails, this can be a real challenge.

As author Emma Kerr noted in “What holding Cryptocurrency Means for Your Estate Plan,” an October 2021 U.S. News and World Report article, “If nobody knows you have it, it’s gone…Somebody has to find those keys and know what they mean. It’s not good if your grandma cleans out your closet and finds that string of numbers on a piece of paper and doesn’t know what they are…”

Basic Terms

Here are some of the definitions and technology involved.

Digital Assets. The Pennsylvania law defines a digital asset as “an electronic record in which an individual has a right or interest…” Digital assets may include email accounts, digital photos, social media accounts such as Facebook, Twitter and Instagram, cloud based storage account and also cryptocurrency. The expression “digital assets” is obviously a much broader term than cryptocurrency and other concepts but does include them. It is still largely unknown how this will play out in the future.

Cryptocurrency. The Dictionary of Oxford Languages defines cryptocurrency as “a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.” Another definition described in “What is Cryptocurrency?” by Kate Ashford and John Schmidt and updated Jan. 3, 2022 in Forbes Advisor, is “Cryptocurrency is decentralized digital money that’s based on blockchain technology…”

Blockchain Technology. Blockchain is a decentralized system that records and manages transactions across many computers and boasts that it’s very secure. “You need a private key to access each of your assets, typically in the form of a long passcode…,” according to a Forbes article, “Cryptocurrency and Estate Planning: What Digital Investors Should Know.”

Bitcoin. The definition of bitcoin makes clear that it is one type of cryptocurrency. “Bitcoin is a digital currency which operates free of any central control or the oversight of banks or governments. Instead it relies on peer-to-peer software and cryptography…A public ledger records all bitcoin transactions and copies are held on servers around the world.  …Every ten minutes or so these transactions are collected together by miners into a group called a block and added permanently to the blockchain. This is the definitive account book of bitcoin…,” according to New Scientist.

Other cryptocurrencies. Bitcoin is not the only cryptocurrency, although the term has become well known possibly because it seems the tender that hackers using malware most reference when demanding ransom from businesses that have been attacked.

There are several others including Ethereum, Litecoin, Dogecoin. This information obviously is not for a casual investor and the technology and information is still very new. Do not venture here without knowing what you are doing and without getting sound advice from a trusted, tested and extremely knowledgeable source.

Janet Colliton is a Certified Elder Law Attorney and limits her practice to elder law, estate planning and estate administration, guardianship and special needs. She is a member of the Pennsylvania Association of Elder Law Attorneys with offices at 790 East Market St., Suite 250, West Chester, 610-436-6674, colliton@collitonlaw.com.  She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services, LLC, a service for families with long term care needs.