Cryptocurrency is defined by Investopedia as a “tradeable and fungible token representing an underlying asset.” Generally speaking, cryptocurrency is a digital asset. It could be thought of as a form of “digital money” or “digital gold,” depending on one’s perspective. It can also be quite valuable. Each Bitcoin is worth more than $69,000 (June 2024), and there are many thousands of other cryptocurrencies. Unlike traditional currencies issued by governments, cryptocurrencies operate on decentralized networks based on blockchain technology. The blockchain is a distributed ledger that records all transactions across a network of computers. However, there is no central authority, such as a government or bank, that controls cryptocurrency.
For the purposes of federal securities law and investment regulations, the Securities and Exchange Commission (SEC) classifies cryptocurrency as a commodity.
When a person passes away in Florida, the probate process is used to determine who will inherit their property and assets. Cryptocurrency, like other property, will go through probate if other estate planning considerations are not made. As explained by the Internal Revenue Service (IRS), “for federal tax purposes, digital assets are treated as property.” Probate law is similar in that Cryptocurrency and other digital assets are considered to be a form of property. If a person utilizes their Last Will to transfer cryptocurrency to an heir or beneficiary, that can be distributed after probate is completed. If there is no LAST Will as well as no other viable estate planning considerations, then that person is intestate. Their cryptocurrency and other digital assets, including assets such as non-fungible tokens (NFTs) will consequently pass to their closest heir (next of kin) as determined by Florida state law.
A trust is an estate planning tool that can be employed to ensure that assets are passed to an heir or beneficiary outside of probate. There are many potential advantages associated with using trusts. One can place cryptocurrency in a trust. A trust can be described as a legal arrangement that allows a trustee to hold and manage assets on behalf of beneficiaries. It is a method that provides privacy, avoids probate, and can provide clear instructions for managing the assets. By transferring cryptocurrency into a trust, a person can assist in ensuring that it is handled according to their desires.
Cryptocurrency is property. The SEC classifies it as a commodity. In that sense, a person’s cryptocurrency holdings are considered to be similar to their holdings in other commodities, such as gold or silver. For purposes of probate law, there is no legal distinction between cryptocurrency and other tradeable digital assets and other property.
While cryptocurrency and other digital assets like NFTs are not treated differently under the law, there are major practical differences which need to be considered when navigating the probate process. If a person does not have a proactive plan in place for their cryptocurrency, for example, there could be serious issues. Here are three key practical differences:
- Location: Unlike traditional assets, cryptocurrencies can be exceedingly difficult to locate. They exist entirely in the digital realm and are not connected to physical entities such as banks or tangible assets. If the deceased party did not provide clear records, identifying their cryptocurrency holdings can be a challenging task. Cryptocurrencies are stored in digital wallets which are accessed through private keys. Without knowledge of these wallets or the keys, it is difficult to locate these items.
- Access: Access is another major area of concern. Even if the existence of a cryptocurrency is known, accessing it can be almost impossible without the right cryptographic keys. Unlike bank accounts or physical safes, there is no “master key” or central authority that can provide access. The importance of practical and effective estate planning cannot be underestimated. A Florida resident needs an estate plan that provides information on how to access digital wallets. Failure to do so can lead to assets being permanently locked away and, as such, inaccessible to heirs or beneficiaries.
- Understanding: Lastly, another challenge is that cryptocurrencies are a relatively new and complex asset class. Many potential heirs or beneficiaries may not fully understand how they work. The lack of understanding can lead to challenges in managing these assets, especially in a fluctuating market that requires timely and informed decisions. Further, Personal Representatives or executors as well as trustees and beneficiaries might struggle with the technical aspects of handling cryptocurrencies, such as transferring ownership, converting them into fiat currency, and understanding tax implications.
Although there are no major technical legal differences, the reality is that cryptocurrency and other digital assets can be particularly challenging to deal with in probate. Whether a Florida resident owns cryptocurrency or other digital assets, when creating an estate plan or attempting to navigate cryptocurrency as well as other digital assets in an ongoing probate, an experienced Florida attorney can protect your interests.
If a Florida resident needs assistance with cryptocurrency in probate or any other estate planning matter, contact an experienced Florida probate and/or Estate planning attorney for expert guidance and support.
The foregoing is a brief and general overview of the topic (Part 2).
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 2 & END OF ARTICLE