Estate Planning: IRL and Web3

By Chelsea Burns, Nouhaila Fellahi, Cat Tang

Planning ahead is second nature in financial literacy. We plan our investments for the next year, mortgages for the next ten years, and 401ks for the next forty. It’s a natural succession to plan for legacy after life.

Estate planning is the distribution of assets after death. Assets include all possessions, from a home to bank accounts to life insurance. Without clear documentation, reallocation of assets can easily become tangled. But, estate planning can be intimidating. It stirs a mix of emotions surrounding death and loss. The administrative hassle is easily procrastinated. But it is the number one thing we can do for our loved ones.

And, with the development of a Web3 asset class, ensuring that your estate is well-distributed can become stickier than ever. Factors like hidden private keys, decentralized assets, and tax redlining are just some of many issues to consider.

Estate planning is for everyone, with and without assets. Let’s get started with this article by outlining the steps to estate planning, both traditionally and for web3 assets. 

Traditional Estate Planning

 

1. Think About Your Post Death Wishes

Do you want a traditional funeral and burial? Do you prefer to be donated to science followed by a celebration of life party? No one should make these decisions for you. Take time to think about your post-death wishes: arrangements for body, post-death celebrations, asset distribution, and caring for dependents. Then, write it down and share it with the people who will be responsible for executing your wishes. Taking this time now eases the grieving process for loved ones.

2. Create a Living Will, Health Care Power of Attorney, and HIPPA Authorization

A Living Will, also known as an Advance Health Care Directive, is an important legal document stating your critical care desires should you become incapacitated. Anyone, regardless of financial status, can use it. A Health Care Power of Attorney appoints a person that will act on your behalf should you be incapable of making decisions. HIPPA Authorization allows a loved one to speak to the doctors about your health specific needs. Lastly, you need to eliminate any guesswork about sensitive subjects such as resuscitation. 

3. Last Will and Testament

This legal document communicates your wishes regarding your possessions and dependents. Estate planning can be complex. There are many other tools and tax strategies someone can implement beyond a Last Will and Testament, but this is the basics.

A financial advisor is a good place to start the discussion, but you no longer have to go through the traditional channels to set up an estate plan. Now, it’s easy to get started with a digital estate plan. Trust & Will in the United States or Willful in Canada are two great options. Both companies have thorough resource libraries, and they make setting up estate plans easy and affordable. Digital estate plans are helpful because consumers have more freedom to edit their estate plans within their own time frame and they are significantly cheaper than hiring a lawyer. 

4. Think Carefully Before Designating Your Executor

Being an executor to someone’s estate can be both emotionally taxing and time consuming. Depending on the complexity of the estate and the types of assets held in the estate, especially if the person owns a business, it can become a part time job and can require good accounting skills and organization. It is important to:

1. Ask your executor if they are comfortable with position 
2. Make sure you are comfortable with this person handling your affairs
3. Share your estate plan and everything listed below with them before you pass away
4. Have follow up conversations with them as your estate changes, etc.

Sample Steps to Share With Executor 

1. Contact lawyer to get a copy of Will and Trust (or company, if digital).

Lawyer’s Name

Address

Phone

Email

2. Look up the estate process in the deceased person’s city/state. Hyperlink it. Copy and paste some important information:

Here’s an example from a Seattle, WA resident:

• File my will and start the probate process: 
• To file the will, you should go to the Superior Court Clerk’s office in any Washington Superior Court and file it there. In King County, the Clerk will require you to pay $20 to do this. Bring the original will and a copy, along with a completed Case Designation Coversheet (check “Will Only” on the second page). The Clerk will stamp a case number on the original will and file it. You should stamp your copy with the case number and date-received stamp. 
• Under RCW 11.20.010, if you have the original will in your possession and you are the personal representative named in the will, you must file it with the Court no later than 40 days after the testator’s death, whether you plan to start a probate or not. If you are not the personal representative named in the will and you have the original in your possession, you have 30 days after the date of death to file it with the Court.

3. Contact accountant

Accountant’s Name

Address

Phone

Email

4. Contact financial advisor

Name

Address

Phone

Email

5. Locate passwords

• Tell your executor where/how to find your passwords

6. Locate estate planning resources, safe for important documents, safety deposit box, etc

• Tell your executor where/how to find these things

Assets Breakdown (repeat for multiple of the same type of asset):

Real Estate

Address

• Is the deed under personal name or owned in Trust?
•  Mortgage company if applicable

Stock Portfolio

Name of Brokerage

Account examples: IRA

• My account(s) has Transfer on Death named. This means my account is transferred upon death to the person named and shouldn’t go through the probate process. 

Account examples: Roth IRA

• My account(s) has Transfer on Death named. This means my account is transferred upon death to the person named and shouldn’t go through the probate process. 

Account examples: TD Ameritrade Individual Brokerage Account

• My account(s) has Transfer on Death named. This means my account is transferred upon death to the person named and shouldn’t go through the probate process. 
• Account examples: Retirement Accounts

Bank Accounts 

Bank Name

• Beneficiary named on account. This means my account is transferred upon death to the person named and shouldn’t go through the probate process. Can have this be a beneficiary or a joint account. 

NOTE: business accounts can be more complicated. Having someone trustworthy be a joint account holder to have immediate access is recommended. 

Debt Breakdown:

Credit Card(s)

Company

Number

Login Info 

Mortgage(s) 

Company

Number

Login Info 

Student Loan(s) 

Company

Number

Login Info

Alternative Assets:

Digital Assets 

Exchange name, Wallet name, Passwords/Keys and Where to Find them (if you don’t write this down, you should at least tell one person you trust) 

Promissory Notes/ Debt Instruments 

Name of person(s) or business(es) on the note(s)-phone number, email

Private Equity (Angel Investments)

Company 

Contact 

Phone Number 

Lawyer’s Information familiar with the deal (name and number)

Crowdfunded/Online Investment Assets 

Company (e.g. Fundrise)

Login Info 

Contact information

Web3 Asset Transfer

An alternative asset gaining significant traction is cryptocurrency and blockchain assets.

Distributing crypto assets to beneficiaries after death has always been a controversial topic in DeFi. 

The crypto world is full of stories of individuals that, either through poor planning or misfortune, have lost access to their assets. 

Once a seed phrase is lost, there is no hope of recovering assets back. 

But, sharing your password with other individuals and central entities gives someone access to up to millions or billions of dollars. Keeping it secret guarantees the inability to access your assets in cases of death or other unpredictable events.

Privacy concerns

There are two options in managing crypto assets:

• Option 1: share your seed phrase.

Saving seed phrases in a hard wallet like Ledger, writing them down on pieces of paper, or using software like LastPass that holds phrases in centralized databases allows for misuse in all cases. 

1. The paper could be lost or stolen, removing your access to your assets and potentially giving it to other parties.
2. Using a hardware wallet is very similar to paper. It stores your phrase on a physical medium and can risk theft and losses.
3. To most people, the use of a central entity to secure their crypto assets defeats the purpose of owning decentralized currency.

• Option 2: do not share your phrase.

Many of the people that are extremely bullish on certain cryptocurrencies don’t share their seed phrases and wallet information. In this case, once the seed phrase is lost or the owner passes away, the assets are guaranteed to be permanently locked away. 

Matthew Mellon’s story

Matthew was an investor and the heir to one of the oldest banks in the US. He was 54 years old when he passed away and left behind what was valued to be more than $1 billion USD in XPR (Ripple) by 2018.  “Mellon said he kept the digital keys to his XRP locked in cold storage in other people’s names at various locations around the U.S.” – Forbes. But, he never clarified where before his death. This made it extremely hard for his family and friends to access and distribute the funds, especially considering cryptocurrency’s volatile prices. Now, three years later, his assets are still on probate, leaving his family struggling to pay off his debt as the majority of his assets were locked in XPR.

Types of assets: wallets/NFTs/tokens

There are many types of assets when talking about crypto. Most people are familiar with NFTs and cryptocurrencies, and a little bit less familiar with the concept of wallets. But do not panic! We will go over what each one is and how they work.

The abbreviation ‘NFT’ stands for non-fungible token. Tokens that, using the security and immutability of blockchain, are unique and each hold(s) a unique value. An NFT is special. Its value cannot be represented using any other asset.

Cryptocurrencies are, in contrast to NFTs, fungible. You can exchange any unit for another one and have the same exact value with the same exact functionalities. 

These can be used as: Value store (Bitcoin’s BTC), governance tokens (Compound’s COMP),  utility tokens (Filecoin’s FIL), currency (Ethereum’s ETH), 

Finally, to make all of this make sense, wallets have to come into play. They help all the magic happen by storing and handling assets. Cryptocurrencies cannot be held in a traditional bank account or centralized database. To own and transfer blockchain-native assets, an ‘asset-holder’ has to come into play. Wallets are created by complex cryptography. To simplify how they work: a wallet seed phrase is the ‘password’ – a unique sequence of words that represents a wallet and all the assets it holds. This means that if someone accesses a seed phrase, they have access to all the funds in the wallet’s primary account.

To give different beneficiaries access to different assets, it would be better to create multiple accounts and give each account’s private key to the desired beneficiary.

Legal considerations

Although crypto is by design decentralized and non-manipulable, many chains and protocols still have to abide by legal guidelines. In most countries, crypto assets are regulated under securities laws as part of the securities regulators mandate to protect the public. Since many of the people who do plan for their death do it through legal will, it means that crypto-assets have to go through a lengthy legal process in order to be transferred. This makes it much more complicated to ensure your beneficiaries get access to their benefits.

Resources:

• Vault12 is one of the leaders in this space. As a personal crypto security option, this system places digital assets in the hands of an individual’s personal network, known as guardians. Crypto assets are encrypted and distributed on a circle of mobile devices. Their digital inheritance feature allows customers to designate a beneficiary for asset transfer after a loved one’s death.
• In web3, identifying risks through the history and previous performance of a certain project is almost never an option because it’s a brand-new and extremely volatile market.

Estate planning can be a hefty task, but it’s well worth taking on to align assets and post-passing wishes with intent.

Traditionally, estate planning consists of planning a will, designating an executor, and breaking down how to access different assets. For web3 assets, there are additional considerations on how to, or if, to trust a third party with seed phrases, how to navigate legal challenges, and how to divide different crypto assets.

If you’re still curious about estate planning, its future, and how web3 assets will evolve, join Eve’s community at www.evewealth.com. You can also learn more about the web3 basics with our free 101 webinar at www.evedefi.com/webinar.  

Disclaimer: Eve is not a registered investment, legal or tax advising company. All investment/financial/legal opinions expressed are from the personal research of our contributors and are intended as educational material.