Crypto Trusts and Estate Planning for Digital Assets

When evaluating your estate and determining what goes into a trust, you will need to have a strong understanding of your holdings and access information. Whether your crypto is held in a traditional brokerage account, an exchange, or in an off-chain wallet of your own makes a big difference to estate planning. Brokerage accounts and exchanges both come with restrictions on including crypto in trusts or identifying beneficiaries and may leave your heirs waiting for an often lengthy probate process to gain access to your crypto. 

Crypto has introduced the world to several new concepts and ways of looking at money and financial planning. While the basics of estate planning have not drastically shifted, the approach to planning for crypto trusts has several important considerations when considering how to incorporate your crypto into your trusts. You need to make decisions about:

• Storage - If you are using a hardware wallet that is protected by a password, you need to ensure that your beneficiaries are able to obtain the password and private key.
• Beneficiaries - When thinking about how your finances survive you, you need to be certain about who will inherit your crypto. You may wish to go so far as to divide your assets so that only those who are somewhat familiar with crypto will inherit it.
• Taxes - Track the cost basis for any capital gains, including on crypto.

From a planning perspective, there could be little worse than leaving a beneficiary crypto held in a trust that the beneficiary cannot access. To get to the coins in your digital wallet, your heir to your crypto holdings must be able to access information such as its existence, where it is held, passwords, the private key, and rules of transfer. Your attorney can help you appoint a digital trustee to manage your assets and ensure proper and prompt transfer to your beneficiaries.

Building the right type of trust for your crypto assets is the most important step you can take to safeguard this portion of your financial portfolio. A trust–when well-established–also serves as a great mechanism by which you can manage your crypto. 

Crypto trusts are potentially the most crucial element of your estate planning. This is due to the complexities involved in safeguarding these non-traditional assets, which operate outside of conventional systems and are susceptible to significant regulatory changes, both present and future.

A properly structured trust will ensure all of your crypto holdings are distributed to the proper beneficiaries at the proper time. The planning that goes along with building the trust further ensures that those beneficiaries will be able to access the crypto you leave for them and reduces the risk of poor handling of this piece of your financial legacy. Further, a trust remains confidential after your passing, while a will may become public during the often lengthy probate process.

A trust also offers direct benefits to your heirs in three ways:

• Tax liabilities may be reduced through the operations of certain trust vehicles.
• The transfer of ownership from you to your beneficiaries is often smoother.
• The appointment of a trustee who understands both your wishes for the trust and the digital assets contained therein helps to ensure your digital assets are properly handled and appropriated at the correct times.

Last, a successor trustee who understands how crypto works should be established. In doing this, you are helping to protect your digital assets for survival after you pass, ensure you remain compliant with shifting laws and regulations, and help to minimize tax liabilities.