A recent CNBC survey revealed that 21% of Americans had owned or traded some form of digital asset (CNBC 2022). That figure is slightly higher than the 19% of Americans that own CDs and IRAs, respectively. With so many Americans owning digital assets, passing them along to future generations in the same way traditional assets are being transferred is necessary. . Let’s explore how both blockchain and digital assets will affect Trust and Estate Planning.

Can Wills Be Stored on Blockchain?
Blockchain is a decentralized and immutable digital ledger that records transactions across multiple connected computers. A blockchain will is essentially a digital version of a traditional will that is stored on a blockchain network. Benefits
include:

• Safety: Blockchain networks are secured by cryptographic algorithms and are unhackable. Blockchain wills are tamper-proof and unable to be changed by anyone other than the owner and the trustee.
• Accessibility & Transparency: Blockchains are easily accessible via the internet. This transparency prevents disputes between beneficiaries and gives a clear view of a decedent’s intentions.
• Simplification: Blockchain wills have the potential to streamline the administration of estates, reducing costs associated with estate settlement.

Are Blockchain Wills Legal?
Legal recognition of blockchain wills vary across the U.S., with some jurisdictions not yet recognizing any form of digital wills. In 2019, four states allowed for electronic wills: Nevada, Arizona, Indiana, and Florida (Crawford, 2020). Today, Idaho, Minnesota, Colorado, North Dakota, Washington, and Utah have all enacted the Electronic Wills Act, with Missouri, New Jersey, and Texas having recently introduced bills (Uniform Law Commission 2023). These laws were originally designed to allow for the digital transfer and storage of wills electronically through traditional channels, and blockchain wills fall under this category. Clients can transfer both traditional and digital assets via these kinds of wills.

Another capability associated with blockchain wills are “smart trusts”. As trusts are legal arrangements where grantors transfer assets to a trustee to hold and manage on behalf of beneficiaries according to the terms specified in the trust agreement, “smart trusts” use blockchain technology to perform the same function and do so with automation. To accomplish this, blockchain platforms use smart contracts, which are self-executing agreements with predefined rules embedded within the computer code. These functions can be utilized to automate the execution of provisions in a will, including automatically transferring ownership of digital assets to beneficiaries upon confirmation of a grantor’s death. For example, once a grantor’s death has been validated, digital assets held
within a smart trust will be automatically distributed to designated beneficiaries via predefined digital wallets.

What About Digital Assets Not in A Smart Contract?
More commonly, clients will transfer their digital assets to beneficiaries using traditional methods. Two primary issues and considerations come to light for trustees and trust administrators: custody and grantor intentions. Once assets are placed into a trust, they move from the grantor to the trust to be managed by the trustee and held by a custodian. In this instance, the grantor surrenders possession or ownership of those assets to the trustee, who is charged with holding titles, deeds, and other assets like securities.

Conversely, digital assets were initially designed for individual ownership and management. These assets are stored in either software or hardware wallets; with each wallet having its own type of unique security. Just like traditional assets, the grantor must surrender ownership of the digital assets and access to the wallets to the trustee. Trustees and administrators will need to consider new systems, policies, and procedures to safeguard the type of wallet they are holding, to ensure the grantor cannot access those funds, and ensure the trustee can access them when needed. The second consideration for trustees and trust administrators holding digital assets centers around the grantor’s intention for the digital assets. In a traditional investment management agency agreement, grantors provide clear guidance to the trustee about the goals for the assets through an investment policy statement. The trustee uses that investment policy statement to guide how the assets are managed, purchased, or sold. Trustees will need to consider these same issues when agreeing to hold digital assets in a trust. For example, if a grantor places 30 Bitcoin into a trust and their directions are for the trustee to sell the assets if it reaches $60,000 per Bitcoin, then the trustee will need to have the ability, access, and necessary passwords to be able to facilitate that on behalf of the grantor.

Both blockchain wills and digital assets are disruptive financial technologies that will require trust professionals to think and operate differently based on the type of will and the type of assets held within the trust. With nearly 20% of the people in this country owning some form of digital asset, it’s inevitable that more individuals will need to transfer their digital assets to future generations. Trustees and trust administrators need to be prepared to understand the type of digital asset a grantor owns, how it is stored, and how to facilitate a potential sale or transfer of the asset to beneficiaries. This requires additional knowledge, policies, and procedures by trustees and trust companies who also face a changing regulatory landscape around these emerging technologies.

References:
• One in five adults has invested in, traded or used cryptocurrency, NBC News poll shows, March 31, 2022. CNBC. https://www.cnbc.com/2022/03/3...
• Blockchain Wills. Bridgit Crawford. 2020. Indiana University School of Law Digital Repository. https://www.repository.law.ind...
• Uniform Law Commission, 2019 Electronic Wills Act. https://www.uniformlaws.org/co...

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