Recently, I have come to know some terms through contact with clients and other professionals. They include bitcoin, cryptocurrency, blockchain technology, and NFTs (Non Fungible Tokens). I was already aware of a related topic – digital assets – which was the subject of a Pennsylvania law passed in 2020 with the mind-boggling title, the Pennsylvania Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA).
The easiest way to explain the popularity of these issues is to relate them to our growing reliance on online technology and the possibilities this reliance opens up for both opportunity and abuse. For those outside of the cryptocurrency world, there is a totally different approach to money and asset transfer than what we have traditionally understood since we first accepted cash and then checks, then credit and debit cards, then ACH debit and similar online transactions. to today’s virtual world.
One question we might ask ourselves is how far this progression will go and how popular it will be. Another question is, assuming this form of virtual currency continues to progress, how can these virtual assets be transferred to successive owners and subsequent generations, for example through their estate plans. Can the information be contained in an estate plan by will or living trust and how could this be done without losing secure access? A hint is that if access is split across multiple sources but could be accessed by the eventual user, would that help?
How secure is the cryptocurrency, and if extremely secure, how can intended successor owners gain access when the asset is supposed to be transferred? Apparently, if you lose the key, it’s lost forever. For people who may have difficulty locating access to documents and emails, this can be a real challenge.
As author Emma Kerr noted in “What Holding Cryptocurrency Means for Your Estate Plan,” an October 2021 US News and World Report article, “If Nobody Knows You Have It, Here We Go … Someone has to find those keys and know what they mean. It’s no good if your grandma is cleaning out your closet and finds this series of numbers on a piece of paper and doesn’t know what it is…”
Here are some of the definitions and technology involved.
Digital assets. Pennsylvania law defines a digital asset as “an electronic record in which an individual has a right or interest…” Digital assets can include email accounts, digital photos, social media accounts such as Facebook, Twitter and Instagram, a cloud-based storage account and also cryptocurrency. The phrase “digital assets” is obviously a much broader term than cryptocurrency and other concepts, but includes them. It is still largely unclear how this will play out in the future.
Cryptocurrency. The Dictionary of Oxford Languages defines cryptocurrency as “a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority”. Another definition described in “What is cryptocurrency?” by Kate Ashford and John Schmidt and updated January 3, 2022 in Forbes Advisor, is “Cryptocurrency is a decentralized digital currency based on blockchain technology…”
Block chain technology. Blockchain is a decentralized system that records and manages transactions on many computers and boasts of being very secure. “You need a private key to access each of your assets, usually in the form of a long passcode…”, according to a Forbes article, “Cryptocurrency and Estate Planning: What Digital Investors Should Know”.
Bitcoin. The definition of bitcoin makes it clear that it is a type of cryptocurrency. “Bitcoin is a digital currency that operates without any central control or oversight from banks or governments. Instead, it relies on software and peer-to-peer cryptography… A public ledger records all bitcoin transactions and copies are kept on servers around the world. …Every ten minutes or so, these transactions are gathered by miners into a group called a block and permanently added to the blockchain. This is the definitive account book for bitcoin…”, according to New Scientist.
Other Cryptocurrencies. Bitcoin isn’t the only cryptocurrency, although the term has become well known, perhaps because it seems hackers using malware refer it the most when demanding ransom from companies that have been attacked.
There are several others including Ethereum, Litecoin, Dogecoin. This information is obviously not intended for a casual investor and the technology and information is still very new. Don’t venture here without knowing what you’re doing and getting sound advice from a trusted, tested and extremely knowledgeable source.
Janet Colliton is a licensed elder law attorney and limits her practice to elder law, estate planning and administration, guardianship and special needs. She is a member of the Pennsylvania Association of Elder Law Attorneys with offices at 790 East Market St., Suite 250, West Chester, 610-436-6674, [email protected] She is also, along with Jeffrey Jones, CSA, co-founder of Life Transition Services, LLC, a service for families with long-term care needs.