What Happens to my Cryptocurrency When I Pass?

Do you own cryptocurrency? Bitcoin, Litecoin, Ethereum, Ripple, Stellar? What will happen to these assets when you pass away? With more and more people dipping their toes into cryptocurrency ownership, it is important to discuss these assets with your estate planning attorney and financial advisor to ensure your estate and financial plan address the ownership. 

Cryptocurrencies present an interesting problem for estate planners because the ownership of cryptocurrencies are individualized instead of institutionalized. As an example, if someone holds cash in a bank account and they die, the bank will limit access to that account until someone presents them with the proper documentation of the death and accompanying legal documents. The legal documents need to either be a small estate affidavit, Letters of Administration from the appropriate Probate Court, or Trust Certification. Owning a cryptocurrency does not offer these institutional protections. Cryptocurrency is much more like keeping the money in a safe in your house. Cryptocurrency is held in an online wallet that only requires a key to open. Much like a safe, if you have the key, you have full access to the funds.

There are benefits and dangers to this type of ownership. A benefit is that the funds can be released almost immediately if a fiduciary has access to the key, which can provide cash to pay for a decedent’s final expenses. However, if the fiduciary trusted with the key turns out to be a wrongdoer, there is little to no recourse to recover the funds. 

Another way that institutionalized funds can transfer upon death is to establish a death beneficiary on the account. Beneficiary designations like this are also common with life insurance policies and retirement accounts. There are no such provisions for cryptocurrency accounts.

Because cryptocurrency accounts are unique to the individual, it is crucial the fiduciary (whether executor or trustee) have access to the necessary information to access the account. It is also crucial that the will or trust for the owner of the cryptocurrency includes language that allows the fiduciary to access the digital and/or online accounts for the decedent.

Trust Administration: What your Beneficiaries Can Expect

Estate planning clients often ask what their beneficiaries can expect when they pass away and a successor trustee is managing their trust. Clients want to make sure their wishes are followed and that their beneficiaries are treated properly. So, what can trust beneficiaries expect during a trust administration?

It is critically important for the beneficiaries of a Trust to pay attention to the administration and know their rights. The most important duty of a trustee is to communicate with the beneficiaries. The California probate code requires that trustees keep “the beneficiaries of a trust reasonably informed of the trust and its administration.” PC §16060. However, often, trustees feel empowered by the power they hold over the trust administration and do not feel it is necessary to provide information to the beneficiaries. 

Beneficiaries should expect to receive a notice from the trustee that he/she is now acting as trustee. In addition, the beneficiary is entitled to a copy of the trust and any amendments under which they are a beneficiary or heir. This puts everyone on the same playing field. Everyone is able to review the terms of the trust to ensure there are no surprises or mistakes. 

Most trustees are imbued with a good amount of power, and so they will likely be able to take many actions without the need for beneficiary intervention or oversight. However, if there is specific property, real or personal, that interests a beneficiary, that beneficiary should make those wishes known to the trustee. Having that information will allow the trustee to take it into account when making distributions and collecting assets. It is possible that beneficiaries will receive notices of proposed action if the trustee proposes the sale or other conversion of high-value assets in trust property.

The next main communication from the trustee to the beneficiaries is trust accounting. This document is usually sent to beneficiaries on an annual basis but can be more frequent if defined in the Trust document. The accounting details all of the financial transactions over the accounting period and should show the property as it stands now. This is the most important document to scrutinize.

What happens after the accounting is wholly dependent on the terms of the trust. 

It is important to remember that all of these steps are the ideal trust administration overseen by a trust attorney. If the trustee does not hire an attorney to assist in the process, it is possible the trustee will not be fully informed and may not follow the steps. Some common issues with trust administration are not providing an accounting, the trustee using funds to benefit themselves, the trustee commingling assets, and the trustee not following the distribution provisions in the trust.

Some of these issues can be remedied by the court if brought to their attention on time, so if you are a beneficiary of a trust administration and you have suspicions that the trustee is not doing their job correctly, contact Tresp Law, APC and we will set you up for a consultation with an experienced Trust Attorney to review the trustee’s job. Do it before it is too late. Stay informed.

Why NOT to Name Your Minor as a 401(k) or IRA Beneficiary

This article specifically discusses IRA and 401(k) accounts, but the lesson generally applies to all financial accounts that allow for payment on death beneficiaries to be designated by the account holder.

Beneficiary designations are great for some circumstances and terrible for others.

Beneficiary designations are strong transfer mechanisms. Accounts with beneficiary designations do not have to be administered through a probate proceeding, and they are not generally part of a trust administration either. When an account holder dies with a beneficiary designation in place, the financial institution will want to verify the death and confirm that the beneficiary listed is legitimate. Once that due diligence is complete, the institution will transfer the funds. Done.

The main problem with beneficiary designations is the lack of control. Even if you execute an estate plan (will or trust) that includes additional provisions for distributions to certain individuals, those provisions will not be integrated into a beneficiary designation. 

This comes into dramatic focus when we look at distributions to minor children.

Children cannot hold property; therefore, someone needs to hold it on their behalf. When a property is to be distributed to a minor from a financial account or probate estate a guardianship proceeding will likely be needed.

A guardianship proceeding is court-supervised through the probate court. There are two types of guardianship proceeding, guardian of the person and guardian of the estate. The purpose of a guardian of the person is to address the physical custody, care, and well-being of the child. The purpose of the guardian of the estate is to protect the child’s financial interest. Here we are discussing a guardianship of the estate which oversees the IRA or 401(k) property. This proceeding will be necessary even if the child’s parent is alive and capable of holding the property. In these cases, the parent will often serve as the guardian, but the property will need to be held in a blocked account and require the court’s permission to access the property. As you can imagine, this is a huge hassle for the parent if there is a need for the funds to pay for the needs of the child. 

The best way to avoid this headache is to name your spouse as the beneficiary of your IRA or 401(k) and then name your revocable trust as the contingent beneficiary. If you have no spouse, that is fine too, just name your Trust as the primary beneficiary. Of course, this is all dependent upon having a revocable trust in place to receive these assets, so please make an appointment with Tresp Law, APC to ensure your trust is properly created and reflects your current wishes.

Keeping Your Estate Plan up to Date After the Birth of a New Child

My Aunt recently passed away, and her children were surprised to find that her will was from 1980, prior to the birth of all her children. The will left everything to her husband at the time and to her sole daughter as the contingent beneficiary. My Aunt had since remarried and had two additional children before passing away.

Estate planning attorneys always encourage folks to memorialize their wishes, but what happens when those wishes are now out of date? Not only should estate planning attorneys encourage people to draft new estate plans, but they should remind them that they need to keep their existing plans up to date over the years.

Life changes are important to incorporate into estate plans because they can drastically alter decisions and planning. Prior to the marriage or the birth of a child, clients may wish to leave property to parents and siblings, but that usually changes following these events. A parent may be the most trustworthy successor trustee and guardian of minor children, but if he/she passes away 5 years after the estate plan is drafted, the client needs to update those provisions to ensure his/her wishes are properly carried out.

Some of these concerns can be elevated by naming multiple successor trustees or guardians to serve consecutively. This allows for a continuity of care or asset management without the need to constantly update documents.

The birth of a new child is always important to bring to the attention of your estate planning and is usually the catalyst for a conversation about other things going on in your life that may need to be addressed, or other items in your estate plan that may need an update.