A growing number of individuals possess a considerable amount of cryptocurrency as well as other digital assets from email accounts and online cloud storage of files and photos NFTs. Some of these assets can hold great sentimental or even financial value to a person’s loved ones after their death. Despite this situation, many individuals fail to account for their digital assets when drafting an estate plan. Forbes Magazine estimates that the total global value of cryptocurrency is approximately $1.75 trillion this year. Despite not being widely understood by everyone, digital assets, including cryptocurrency, are an asset class which are likely to remain. This raises an important question: How is a digital asset such as cryptocurrency managed in probate? The brief answer is that there is no technical legal distinction between cryptocurrency and other “property” investments in probate; however, there are some distinct practical differences. The following is a general overview of the key aspects to understanding cryptocurrency as well as other digital assets in estate planning and probate in Florida.
When a person dies with estate assets, it is up to their family, specifically their Personal Representative or executor, to take an inventory of the assets within the estate and file it with the Florida Probate Court. But creating an inventory of a person’s digital assets is far more difficult than simply finding the items stored in their attic.
Without a digital asset estate plan, it will be far more difficult for your Personal Representative to identify and document a deceased party’s digital assets. They may be able to locate certain assets by accessing a household computer and reviewing saved passwords. However, other digital assets may be overlooked or simply lost if not properly documented in a digital asset estate plan. To avoid this, a Florida resident and their estate planning attorney should prepare a list of the digital assets, along with links to the apps or URLs used to access them and log-in credentials necessary to access the account.
What will happen to digital assets without an estate plan is that they may simply disappear. For example, Google recently announced that beginning December 1, 2023, it will be deleting unused accounts. Idle accounts that have been dormant for at least two years, including those that belonged to a deceased party, will be deleted to make space for future uploads. This affects Gmail emails and files stored in Google Drive, Docs, Meet, Calendar, and Photos, as well as some YouTube videos. To preserve those files, someone must log into the account at least every two years.
A Personal Representative acts as the fiduciary for one’s estate after death. The Letters of Administration issued by the Florida probate court can be used to access one’s bank accounts, talk to applicable financial advisors and insurance companies, and perform financial transactions such as selling real and personal property. Since 2016, that has included granting fiduciaries access to digital assets as if they were the account holder.
However, a few digital asset companies like Facebook or Google do not honor Letters of Administration easily. They may have their own processes for a person to designate a legacy contact for their accounts and may assert federal privacy laws preventing them from giving the Personal Representative or executor full access to the accounts without the decedent’s consent. If a person dies without naming a legacy contact, the Personal Representative may need to file a petition with the Florida Probate Court to enforce the Fiduciary Access to Digital Assets Act and gain access to the applicable online accounts. This process will increase the cost of estate litigation as the social media and digital asset companies seek to protect the deceased party’s privacy even when the decedent never wanted them to do it.
This access issue becomes especially complicated with blockchain technology and cryptocurrency assets. One of the unique aspects of cryptocurrency is that it is decentralized, i.e., there is no single entity overseeing and endorsing all the transactions. Instead, possession of Bitcoin or other crypto assets is represented by possession of a key. Without it, a digital wallet will be lost. Various estate planning attorneys and their clients have devised interesting ways to pass these keys to the intended beneficiaries without violating federal cybersecurity laws.
Without a plan in place, there may be no amount of estate litigation that will be able to save one’s digital assets if that digital key is lost. The cryptocurrency companies do not maintain records tying their users’ identities to their keys. That means there is no way for the probate court to compel discovery of the login credentials.
However, in other cases, a caregiver or other person with access to the deceased’s home may wrongfully take possession of the flash drive or paper one’s digital key is stored on. If they do, it could require estate litigation against them to get them to turn that property over to the personal representative so it can be distributed according to one’s wishes.
In 2014, the IRS issued a notice stating it would treat “virtual currency” like Bitcoin as personal property, rather than cash. In probate court, these assets are more like heirlooms than bank accounts. The distribution of digital currency within an estate administration case could trigger capital gains taxes based on the change in value between when the crypto assets were obtained and when they were transferred out of the estate.
This can also create problems in the estate’s accounting. Personal Representatives are required to account for all the financial transactions of the estate, including the distribution of assets to beneficiaries. However, in calculating the value of crypto assets, the personal representative will need to determine the “cost basis” of those assets based on when the deceased obtained them. Unless that person kept careful records of their crypto transactions, the estate may need to retain a financial professional to establish the change in those assets’ value over time. If the personal representative fails to do so, it could expose the family to estate litigation or even tax consequences related to the improper accounting for cryptocurrency.
Digital assets, including cryptocurrency and NFTs, represent a sizable portion of many people’s estates today. Without proper estate planning, these valuable and often irreplaceable assets can easily be lost. By preparing a comprehensive digital asset estate plan, a Florid resident can ensure that their personal representative can access, manage, and distribute these assets according to the decedent’s wishes. This planning will save one’s heirs time, effort, and potential legal battles while preserving the digital legacy. If a Florida resident needs assistance with cryptocurrency in probate or any other estate planning matter, contact an experienced Florida probate and estate planning attorney for expert guidance and support.
The foregoing is a brief and general overview of the topic (Part 1).
If you have any additional Questions regarding the foregoing or have any legal issue or concern, please contact the law firm of CASERTA & SPIRITI in Miami Lakes, Florida.
END OF PART 1