Estate Planners Adapt to Digital Assets with Blockchain Technology

Estate planners are adapting to new forms of wealth by incorporating digital assets into their planning strategies. Historically, they focused on real estate, securities, and closely held businesses. Now, with the increasing number of clients owning digital assets such as cryptocurrency and tokenized investment interests, blockchain technology is beginning to influence how ownership records, business succession, and estate administration are managed.

The IRS classified virtual currency as property in 2014, concluding that it is subject to federal income tax purposes. This classification has significant implications for estate planning, including determining the basis of inherited assets. Estate plans involving cryptocurrency should include procedures for identifying digital assets, securely storing access credentials, authorizing fiduciary access, maintaining appropriate cybersecurity, and documenting ownership.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) provides a legal framework for executors, trustees, agents acting under powers of attorney, and conservators to obtain disclosure of or manage a person's digital assets. Estate planners should ensure that estate planning documents expressly authorize fiduciaries to manage digital assets whenever appropriate.

Blockchain technology offers the potential to maintain secure, time-stamped ownership records documenting transfers, valuations, restrictions, and ownership percentages for family-owned businesses, including farming and ranching operations. Smart contracts can also automate routine transactions, reduce administrative costs, improve efficiency, and minimize disputes over whether contractual obligations have been fulfilled.