Publications

The Private Client Services team is pleased to announce the launch of the “Estate Planning with Digital Assets” series. In the first issue, Vanessa L. Maczko and Beth A. Scharpf discuss terminology that estate planners and their clients must understand to engage in conversations about digital assets in an estate planning context, as well as the necessary information clients must share for the conversation to be productive and effective.

As estate planning attorneys, it is our job to assist clients with the proper disposition of their assets at death. Part of this process involves advising clients with respect to lifetime gifting to reduce or eliminate the estate tax burden they may face at death. One frequent conversation we have with our clients is how to dispose of their digital assets, whether at death or as part of a lifetime gifting plan. We will outline this conversation in a multi-part series. In this first part, we introduce terminology that estate planners and their clients must understand to engage in this conversation as well as the necessary information our clients must share for the conversation to be productive and effective.

5 Questions for Clients to Answer

Before engaging in an estate planning transaction with a digital asset, clients must answer the following five questions:

1. Do you invest in digital assets?
2. What type of digital assets do you own?
3. Do you have a record of when you acquired the digital asset and what you paid?
4. Do you use a hot wallet and/or cold wallet for storage of the digital asset?
5. Who has access to the hot and/or cold wallets?

To process this information and advise clients effectively, the estate planner must understand the types of digital assets and how they are stored.

What are Digital Assets?

First and foremost, it is helpful to understand what a digital asset actually is. The Revised Uniform Fiduciary Access to Digital Assets Act defines a digital asset as an electronic record in which an individual has a right or interest. This definition would cover what we consider to be two different types of digital assets: “sentimental digital assets” and “investment digital assets.” The former would cover digital assets that are sentimental in nature such as emails, social media accounts and digital photos and videos. For these types of assets, our main concern as estate planners is allowing loved ones to access to such assets upon a client’s death.^[1] For investment digital assets, the concerns are more numerous and are the main discussion of this series.

Investment digital assets are defined by the IRS on Form 1040, U.S. Individual Income Tax Return, for calendar year 2022 as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” These types of digital assets include, but are not limited to, convertible virtual currency and cryptocurrency, stablecoins and non-fungible tokens (an “NFT” or “NFTs”).

1 Social media sites like Google, Apple and Facebook have mechanisms to allow access to a designated contact. Google offers an “inactive account manager” tool, and Apple and Facebook allow users to designate a “legacy contact” and set related preferences.

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