With the rise in popularity of cryptocurrency as a highly sought after asset, there is no doubt that estate and trust practitioners will come face to face with the estate planning challenges presented by this new asset class on an ever increasing basis.

Cryptocurrency rose to prominence within the last ten years, almost seamlessly becoming a part of the investment vernacular overnight.  Some credit Satoshi Nakamoto, an enigmatic entity whose identity has never been confirmed, with creating cryptocurrency  as evidenced by the publication of the white paper in 2008 entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” and the launch of Bitcoin a year later.  There are others who contend that cryptocurrency has a more extensive history, stemming as far back as 1998, when computer engineer, Wei Dei, hypothesised “b-money: an anonymous, distributed electronic cash system”.  Even still, there is another faction that claims its history stretches back a bit further.  Nonetheless, origins aside, cryptocurrencies have become a treasured component in investment portfolios, particularly for the tech savvy, on-trend investor.

Cryptocurrencies are not be confused with traditional forms of digital fiat currencies, such as The Bahamas’ very own central bank backed and regulated Sand Dollar.[1] Cryptocurrencies differ from theses types of currency in that it is entirely decentralised and regulated by its community of users, as opposed to governmental monetary authorities.  Unlike its digital fiat-styled counterparts, cryptocurrencies are supported by a highly complex digital ledger, known as “blockchain”.  This is system that records each transaction made, using the cryptocurrency via a series of information stores called “blocks”.  Blockchain is public, and as such, the date, time, and nature of each transaction, is recorded to be viewed by all.  Cryptocurrencies are accessed and their ownership validated by possession of a private key. Cryptocurrency owners typically use password protected digital wallets to consolidate, store and transact with their cryptocurrencies.  Unfortunately, there is a downside to the use of cryptocurrency.  When a private key or password is lost, recovering the cryptocurrency may be impossible, if not exceedingly difficult.

As a corollary of the popularity of cryptocurrencies over the past two years, there has been an uptick in case law from across the common law world which considers the nature of cryptocurrencies.[2]  All of these cases conclude that cryptocurrencies are property.  The main take away from this development for estate and trust practitioners is that cryptocurrencies, by virtue of being property, are transferrable from person to person and as such, can devolve to beneficiaries of an estate under a Will or form the corpus of a Trust.

However, despite the novelty of this emerging technology, there are certain well honed estate planning strategies that clients and practitioners can adopt to deal with the complexities presented by cryptocurrencies. With the right tweaking, two of the most common estate planning tools, the Will and the Trust, are capable of adequately dealing with cryptocurrency.

Leaving cryptocurrency in a Will

Where cryptocurrencies are intended to form a part of the client’s estate, the draftsman should take great care to ensure, and in most cases should recommend, that specific reference be made to the cryptocurrency in the Will.  The reason for this is that cryptocurrencies, much like online subscriptions and player skins in the computer gaming world, form a part of the digital lives of their users, an aspect of their virtual identity which their loved ones may very well not know exists.  By referencing the cryptocurrency in the Will, these potentially highly valuable assets become known to the executors of the estate. On the other hand, an omission to make such reference could relegate the cryptocurrency to the residuary estate of the testator, making it near undiscoverable unless a relative or close friend has knowledge that the testator owns those assets.

Access is key when dealing with cryptocurrencies. In light of this, consideration should be given  as to how to enable access by the executors or the beneficiaries of the estate to the cryptocurrency.  It is not advisable to include wallet passwords and private key details in the Will itself.  It should be remembered that once submitted to probate, the Will becomes a matter of public record, available to the world for inspection.  In order to overcome this, access information can be recorded in a memorandum referenced in but not annexed to the Will.  Such action would enable the executor to better comply with his duty to make a proper accounting of the estate, as he will be alerted to cryptocurrency existence.

Another consideration when planning for estates which include cryptocurrency is to ensure that the executor is able to aptly deal with the cryptocurrency.  Some beneficiaries may find the prospect of holding cryptocurrency unpalatable and may prefer a more familiar asset instead, such as cash.  In such instances, it may be useful to include provisions in the Will which enable the executor to convert the cryptocurrency into cash or trade it for another asset which is more desirable to the intended beneficiary.

Settling cryptocurrency in a Trust

Drafting considerations for Trusts comprised wholly or partly of cryptocurrency, are similar to those for Wills.  In jurisdictions such as The Bahamas, for instance, where there is no requirement for Trusts to be publicly registered, and where discretionary beneficiaries have no automatic right to disclosure of Trust documents, added comfort can be given to clients who seek a high degree of confidentiality in their estate planning.

As with a Will, a Trust can be drafted so as to make specific reference to any cryptocurrency settled in it. However, such an action may not be necessary where the cryptocurrency does not form the initial corpus of the Trust, but is instead transferred to an already existing Trust Fund.  This is so as due administration of a trust calls for thorough record keeping.  In this vein, a prudent trustee accepting cryptocurrency as an addition to the trust would ensure that the acceptance of the cryptocurrency is recorded in a trustee resolution or Deed of Addition to Trust Fund, whichever appropriate for the Trust concerned.

Similar to a Will’s testator, a settlor of a Trust should consider providing access details for cryptocurrencies to his trustees in the form of a memorandum or he may opt to provide them in his Letter of Wishes.  These documents will form a part of the package of Trust documents held by the trustees and will aid them in administering the Trust according to its terms and the wishes of the settlor.

Trustees should be given sufficient powers to enable them to deal with cryptocurrency settled in the Trust in the manner the settlor intends.  If the settlor intends that the cryptocurrency form a part of the Trust for the long haul, the terms of the Trust should permit the trustees to retain the cryptocurrency.  In default of such terms, trustees have a duty to make and change investments as a prudent investor would.  Such a duty may necessitate that the trustee invest Trust assets or convert them to avoid the diminution in value of the Trust Fund.  This duty can be highly frustrating to trustees faced with administering cryptocurrencies, the values of which are known to be volatile. By expressly excluding the prudent investor duty in the Trust Instrument, the trustee will have freedom to continue to hold the cryptocurrency in trust in the face of market fluctuations. In addition to this, trustees, particularly professional and institutional trustees, may insist that the Trust Instrument include indemnities sufficient to insure them against the risks associated with taking on trusteeship of cryptocurrency.  On the other hand, where the settlor intends that the cryptocurrency is to be used for investment purposes, the Trust Instrument could contain provision to appoint an investment advisor or manager adept in handling cryptocurrencies so that investment of this asset can be appropriately delegated.  A provision such as this is especially useful when appointing an individual trustee who may not have sufficient knowledge of cryptocurrencies to manager them or where an institutional trustee’s policies adopt a risk averse attitude toward cryptocurrencies.

Conclusion

Estate planning for cryptocurrencies can be a daunting task even for the most sophisticated investor or estate and trust practitioner.  However, with careful thought and expert advice, the task can be scaled down to a less Goliath-like prospect.  That being said, as advisors begin to interface more and more with the estate planning challenges presented by cryptocurrencies, a natural ease of doing so will begin to emerge along with a broad spectrum of solutions to address the challenges faced.

[1] “Project Sand Dollar” launched in late 2019.  More details about this project can be found at this link to the Central Bank of The Bahamas’ website.

[2] shair.Com Global Digital Services Ltd. v Arnold 2018 BCSC 1512 (Canada)
B2C2 Ltd. v Quoine Pte Ltd. [2019] SGHC(I)3 (Singapore)
AA v Persons Unknown [2019] EWHC 3556 (England)
Ruscoe v Cryptopia Limited (in liquidation) [2020] NZHC 728 (New Zealand)

About the Author
Kamala Richardson is an associate in the firm’s Private Client & Wealth Management practice group and specializes in wills, estate planning and matters related to trust law, foundations and company law. She is a STEP Affiliate and a member of the BFSB’s Trusts Working Group.

*Article first published in Gateway Magazine, Fall 2020. Click here for the full issue.

The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases. Copyright ©2020 Higgs & Johnson. All rights reserved.

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