The popularity of cryptocurrencies has heightened the world’s attention on the versatility of blockchain technology. An interesting development is the application of a blockchain solution for estate planning of crypto assets.
Generally speaking, a blockchain is a shared, real-time ledger of any type of information that can be recorded ranging from financial transactions to ownership of real property. Blockchain technology allows for blocks of information to be stored in a chain on a distributed peer-to-peer network.
The traditional method of estate planning, as we know it, involves hiring a lawyer to prepare a will, which appoints the executor(s) and lists the beneficiaries. When the testator passes away it is the responsibility of the executor to administer the estate in accordance with the will. This traditional method has created uncertainty for testators who own Bitcoin or other cryptocurrency and intend for their beneficiaries to receive them.
It is estimated that millions of Bitcoins have been lost as a result of testators not adequately factoring this type of asset into their estate plan. For testators that have considered their crypto assets, concerns still remain as to whether the executor has the technological ability to access and distribute a cryptocurrency holding.
One possible way for the testator to address this uncertainty is to author a plan with detailed instructions and provide the private key to the executor(s).
A start-up company in the United States has fostered a novel approach to this issue. The company’s product offering uses a blockchain-registered will also known as a “crypto-will” to enable digital assets to be transferred automatically. The idea behind the product is that once a testator’s death record appears in the Death Master File, a computer database of death records made available by the United States Social Security Office, the crypto-will is then activated and executes the wishes of the testator. This potential solution eliminates the need for an executor to administer this portion of an individual’s estate.
As the crypto-will is still very much in the development stage, many questions still remain. It will be interesting to discover how the concept of a crypto-will evolves in the near future.
Thank you for reading,
Ian M. Hull
As I write this, a single bitcoin is worth more than US$8,200. It will undoubtedly be worth a different amount by the time you read this, because the value of bitcoin can change quickly and dramatically.
No one can say with certainty whether this is a bubble that will burst or whether it’s a ground floor price that will rise even further. But what we can say with certainty is that cryptocurrencies today (whether it’s bitcoin or other digital currencies like ethereum or litecoin) have real value that can be used to buy things or be exchanged into hard currency.
If you are new to cryptocurrencies, and remain baffled by what they are, you are not alone. I love this simplified explanation of bitcoin – it can help wrap your mind around a very elusive concept.
For a step-by-step guide to investing in cryptocurrencies, this short article is a great primer that sets out the process and the risks. And for a more Canadian-specific take on investing in these currencies, this article highlights the process and the risks.
Make a plan – it’s an asset like any other
I’m not advocating an investment in cryptocurrencies – that’s for you and your financial advisor to decide. The issue from an estate planning perspective is that thousands of Canadians now own cryptocurrencies, and their value has increased by many multiples over the past year. There are, quite literally, millions of dollars tied up in cryptocurrencies in Canada. For many, an experimental hobby, dabbling in cryptocurrencies, has become a relatively sudden source of wealth.
My previous blog in 2014 highlighted the need to ensure that your estate specifically deals with digital access and the distribution of digital assets. This appears to be even more important today with the rise in value of cryptocurrencies.
This recent article sets out some estate planning tips that relate specifically to digital currencies. It’s well worth a read, especially if you’ve taken the plunge and own these currencies.
Thank you for reading … Have a great day!