Crypto assets rewrite estate planning

Complex cryptocurrency assets are driving financial advisers to reconsider their clients' digital lives and the impact this has on estate planning.

Australian Unity Trustees national manager, estate planning, Anna Hacker describes cryptocurrency as "a real minefield" for estate planning. She says the anonymity that comes with crypto assets makes it challenging.

"It is difficult to know about such holdings unless they are disclosed. It's also virtually anonymous, so there is an inherent traceability nightmare because you can't just walk into a bank and get all the details," Hacker says.

A recent spot poll in Financial Standard's sister publication FS Advice showed 81% of financial advisers would warn clients against making such a speculative investment. Despite this, the hype continues to propagate.

Royds Withy King, a UK law firm, is currently acting on three separate divorce cases where spouses are seeking the disclosure and potential share of cryptocurrency assets. These are among the first cases in the world and there's curiosity as to the result, particularly given the infancy of regulatory guidance on digital currencies.

The likelihood of such cases becoming commonplace grows each day and specialist estate planning financial advisers and professionals should begin preparing for the onslaught. But how exactly does one best account for cryptocurrency when drawing up estate plans?

Whether held in a hot or cold wallet - meaning online or offline - it would be simple for a spouse to hide crypto assets in the event of a divorce and, in any event, it can be difficult to prove ownership. With a digital key serving as the lone identifier for accessing wallets, it can also be argued that disclosure doesn't always equal protection.

"Essentially, possession is ownership. If you list the details of your digital wallet (such as on an inventory of assets in applying for probate of a will) you might be giving away the digital key for someone else to use," Townsends Business and Corporate Lawyers special counsel Brian Hor says.

Former financial planner and partner of cryptocurrency brokerage firm Bitcoin Trader, Warrick Pleash, says a catch-22 is that without instructions as to the location of the crypto and its digital key, those assets could be lost forever.

"There are scores of people that have already lost their crypto assets because they can't locate their ledger nano device or have lost their digital key and there's not a single thing that can be done about it. It's encrypted to the point that it would take a super computer about 200 years to unlock it," he says.

Of the 21 million bitcoin that will ever be in existence, about four million are estimated to have already been lost.

Further, the volatile nature of cryptocurrencies means valuations of assets could vary wildly; a sizeable challenge for an adviser attempting to ensure equitable share of assets. In December 2017 the price of bitcoin hit a market high of about $25,000 only to drop below $15,000 a month later.

This is an extract of a news story first published in the latest issue of Financial Standard. You can view the full article on our free iPad app.

Read more: cryptocurrencyFinancial StandardAnna HackerAustralian Unity TrusteesBitcoin TraderBrian HorFS AdviceRoyds Withy KingUKWarrick Pleashfinancial advice
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