With growing investor interest in digital assets and cryptocurrencies, especially among the younger generation, a host of new successor development challenges have entered the mainstream.
This is particularly so among the more sophisticated ultra-high-net-worth ("UHNW") investors and their family offices, says Vadim Neumann, Investment Specialist at ZEDRA.
Since the dawn of the new millennium, younger family members have been wielding increasing influence over investment direction, bringing a fresh and energized approach to family wealth stewardship. This has fuelled a surge in digital assets being adopted into family wealth portfolios. Cryptocurrencies such as Bitcoin, Ethereum, and non-fungible tokens ("NFTs") are steadily accumulating, prompting the question: 66t is it possible to transfer digital assets to a trust? Do the same rules apply to digital currencies and NFTs as they do to the rest of your holdings?
There has previously been some discussion about whether a trustee can hold digital assets as part of a trust's assets. Experts in the disciplines of technology and trust law appear to have agreed that digital assets are identifiable and transferable, implying that a trustee has the authority to retain them.
Can you transfer digital assets to a trust?
In short, yes - you can create a trust and decide to use it to store cryptocurrencies and NFTs, as well as any other assets you like. There are, however, certain factors to keep in mind:
1. Sensibly investing in cryptocurrencies in a trust is no different than investing in any other asset;
2. It is critical to invest cryptocurrencies in your trust in accordance with your investment principles and objectives at all times;
3. Establishing long-term cryptocurrency storage best practices during your lifetime will reduce the risk of digital or physical threats;
4. Write a clear and comprehensive directive for revealing and passing control of your digital assets to beneficiaries, including guidance on how less-experienced beneficiaries should manage their new digital asset investment.
Professional estate planners will no doubt be particularly cautious when setting up a crypto-holding trust owing to the heightened volatility and unpredictability of digital currencies.
That being said, instructing a credible and sophisticated trustee will ensure your digital assets are managed and transferred as safely and astutely as any other asset class.
If digital assets are, or likely will become, part of your portfolio, it is vital to do your research and ensure you're working with a digital-savvy trustee.
They should be able to demonstrate clear fluency in a variety of topics, such as how digital assets work, how they are obtained, how they must be managed, and how they might be delivered to trust beneficiaries.
How do I ensure my digital assets are safe?
In addition to working with a high-calibre trustee, choosing the right digital wallet is key. As with selecting a bank, you need to ensure your chosen wallet is secure enough to keep your cryptocurrency safe.
With cryptocurrencies, a clear and well-planned order for its transfer and use after death of the settlor is essential. Whilst investing in crypto through an exchange or brokerage account, be sure your trust has a clear policy in place for passing account ownership or control to your beneficiary(-ies).
Setting up clear directives that assure the beneficiary has access to your private keys (the primary means of proving ownership of your digital currency) is critical.
Your beneficiaries will be rendered completely unable to claim or use any crypto coin in the trust if your private keys are lost. As possession of private keys equates to control of digital assets, it's therefore critical to have a clear and secure method of safeguarding your private keys and transferring control, so that only the digital assets' beneficiaries are aware of the private keys.
If your cryptocurrency is held in numerous places, such as an exchange, a ‘cold' hardware wallet, or a non-custodial wallet, it's essential to proactively educate your trustees so they know exactly what they need to do to access the coins, including how to sell them.
Digital assets: safe in the right hands
We've all heard it said, and there's no denying it: the future is digital. Investing in digital assets, however, is not a decision that should be rushed. If and when you take the digital plunge, though, you can be sure that managing such assets within a trust can be as secure and reliable as with any other assets - if you appoint a trustee with the requisite digital knowledge to do so.
As with traditional assets, digital assets can be a highly lucrative and wise investment. It is only right, therefore, that you should be confident and assured that their holding within a trust is handled with a superior level of knowledge and expertise.
By Vadim Neumann, Investment Specialist at ZEDRA
