Seven years ago, Bitcoin was a new cryptocurrency worth nothing, but has since become one of the most popular virtual currencies, along with others that have gone on the market. As a result, it’s important to for clients and estate planners to adequately safeguard, manage, and distribute virtual currency without any issues arising.
Problems with Virtual Currency
While more and more people are using cryptocurrencies such as Bitcoin, Litecoin, and Ethereum, there is a certain problem with these currencies that can make it difficult to manage.
Virtual currency can be held offline or even anonymously, which makes it challenging—or even entirely impossible, in some cases—for fiduciaries to access it. Due to virtual currency’s overall increasing value, it’s necessary for owners to account for their entire collection and the disposition of the currency in the event of incapacity or death.
Gaining Access to Virtual Currencies
Enacted across 36 states in the U.S., the Revised Uniform Fiduciary Access to Digital Assets Act (UFADAA) provides clearly defined rules that fiduciaries must follow when accessing virtual currency and, in some cases, obtaining information about the online accounts on which the currency is stored.
Certain outlets such as Coinbase grants fiduciary access to their accounts, but only if the user is deceased. However, because Coinbase accounts are connected to bank accounts, the user’s bank records or email account will typically indicate the existence of an account when accessed.
In addition to email, virtual currency or any evidence of it will often appear on the user’s phone, computer, or tablet. The ability to store virtual currency offline also means that access keys and backup data could appear on flash drives or other portable storage devices.
Management and Disposition
Once the fiduciary has gained access to the user’s virtual currency, he or she either has to manage it, or dispose of it if the user is deceased, based on the owner’s revocable trust or will.
To help ensure that virtual currency is distinguishable from other types of property, it’s important to apply a specific identifying label to the currency, whether it’s Bitcoin or another currency.
Taking these aspects of virtual currency and its overall growing value into account, estate planners and clients can more easily acquire, manage and dispose of this currency accordingly.