Tag: blockchain

22 Sep

Smart Contracts and New Frontiers in Estate Planning

Suzana Popovic-Montag Estate Planning, In the News, Wills Tags: , , , , 0 Comments

Cryptocurrencies, such as Bitcoin and Ethereum, have been surging in popularity. As our colleagues have written here and here, they have raised a variety of unique considerations in the context of estate planning. However, the underlying technology in cryptocurrencies, blockchain, has given rise to a variety of digital tools beyond cryptocurrency. “Smart contracts” are one of these.

Broadly speaking, blockchain allows blocks of information about transactions to be recorded and stored on a distributed ledger. This article provides a more detailed overview of blockchain for those interested. Smart contracts are an extension of blockchain. They are programs stored on blockchain that run when certain pre-determined conditions are met, thus automating the execution of an agreement. Since the steps in a smart contract are hard coded, failure to fulfill conditions as agreed upon, prevents any progression. When conditions are fulfilled, the blockchain is updated and the agreement proceeds.

Two of the main attractions of these smart contracts is that they can serve to accelerate the transaction by removing middle-men and add a high degree of certainty to the performance of an agreement based upon the pre-established terms.

These benefits, however, should be approached with caution. The basis for the certainty arising from smart contracts is that they are hard coded, and the blockchains on which they are built rely on encryption to prevent fraud. The same certainty which is a strength can be a weakness though, as it makes changing the terms of an agreement difficult, if not impossible, in some circumstances.

Businesses advertising smart contracts in the context of estate planning are becoming more common. Potentially removing the need for executors, lawyers and other intermediaries in the administration of an estate can sound very appealing from a cost perspective.

Having said that, one should bear in mind that the law and factual matrix of an estate can and often does vary over time. Certainty can become fatal inflexibility in the face of change. A change in the law or conditions around an estate may prevent the performance of a smart contract where the coded preconditions require an impossible or illegal action.

New technologies are often exciting, and no doubt can bring positive change, but they also bring unknown risks. An abundance of caution would be well advised when using novel tools like smart contracts.

Thank you for reading and have a great day!

Suzana Popovic-Montag & Raphael Leitz

03 Apr

Is a Crypto-Will a new frontier for estate planning and administration?

Ian Hull Estate & Trust, Estate Litigation, Estate Planning, Uncategorized, Wills Tags: , , , , 0 Comments

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

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