Willful co-founder and CEO Erin Bury explains how valuable crypto-assets can fall through the cracks when the worst happens
It seems like not a week has gone by in 2021 where the headlines weren’t dominated by digital assets, primarily Bitcoin’s skyrocketing price, and the rise of NFTs - or non-fungible tokens - launching a new craze to amass unique digital assets that include everything from million-dollar art to songs by The Weeknd. It’s as common in 2021 for a client to hold cryptocurrency in an app like Coinsquare as it is for them to hold traditional investments like mutual funds. But new research shows that the average Canadian doesn’t have a plan in place for what happens to those digital assets in an emergency, which could leave millions in assets floating in the digital ether.
Step one: Highlight what happens to digital assets in an emergency
When advisors discuss estate planning with clients, the conversation tends to focus on the basics: whether they have a will; whether they have life insurance; beneficiaries on registered plans; and tax considerations. Increasingly, clients are amassing a new class of digital assets, and advisors are well positioned to help clients understand the unique considerations for digital assets and estate planning.
The first step is to highlight what actually happens to their digital assets when they pass away. A new Angus Reid survey commissioned by my company, online will platform Willful, found that 71% of Canadians either don’t know what happens to someone’s crypto when they pass away, or they’re wrong about what actually happens. So what happens to cryptocurrency when someone passes away? Digital assets are treated like other traditional assets, in that they form part of someone’s estate when they pass away. Only 22% of Canadians selected the right answer - that cryptocurrency doesn’t automatically transfer upon someone’s death; rather, the person’s executor would need to access it and transfer it to beneficiaries.
Step two: Ensure clients have an up-to-date asset list that includes digital assets
After educating clients about how those assets would pass to their beneficiaries, the second step is to ensure that clients understand the importance of sharing information about their digital assets with their executor and/or key family members. When someone passes away with money in a bank account, their executor can call the bank to ask whether they held assets there; even with that, CBC News reports that an estimated $5 billion in assets, largely belonging to deceased people, are sitting in Canadian banks.
With cryptocurrency, there is no central body to call to check if a loved one held some - as the executor or family member you either know the crypto exists, or it’s lost forever. Many clients have likely purchased cryptocurrency and not informed loved ones, which is a huge risk if they are incapacitated or pass away. You are likely already encouraging clients to create an up-to-date list of assets and storing it with their will, and they should ensure they’re including digital assets on that list, and keeping it up to date over time. This should include whether they store their crypto in an app like Coinbase or Coinsquare, or whether it’s stored directly in a hot (online) or cold (offline) wallet.
Step three: Ensure clients have shared access info with an executor/loved one
Even if an executor or family member knows their loved one holds cryptocurrency or other digital assets, it doesn’t mean they’ll be able to access them, which is why the third step is ensuring your clients have shared access information with their executor. Take the famous case of Gerald Cotten, the Canadian founder of cryptocurrency exchange Quadriga - he died in 2018 with the private key to over $200 million in client cryptocurrency assets (though it later came out that he was running a massive Ponzi scheme, it highlighted the importance of sharing those digital keys to with loved ones).
If a client holds their crypto in an app like Coinsquare, there is more recourse for executors looking to get access to those assets - for example Coinsquare has a death policy that requires an executor to provide a copy of the will and other information, and they will then begin the process of transferring the assets. But many people purchase cryptocurrency and don’t store them in an app like that - rather they store the crypto directly in a hot or cold wallet, which means that a 42-digit private key is required to access the assets. Without that private key, there is no way to recover the funds; in a report by CNBC, a British man learned that the hard way when he threw out a hard drive with $280 million in Bitcoin stored on it. We surveyed Willful customers and found that only 50% have shared their passwords with someone in their life, so as an advisor you can play a role in encouraging clients to keep a copy of their private key in a safety deposit box or other safe place, and to ensure their executor has access.
Step four: Ensure clients have an up-to-date will
Just like with other assets, without a will, digital assets will be distributed as per a provincial formula instead of according to your clients’ wishes. The best way to ensure that doesn’t happen is by having an up-to-date will. You likely already ask clients about estate planning in your meetings, but online options like Willful can make it easier for them to finally check it off their list.
While a will typically doesn’t contain an asset list or passwords, it can include clauses specific to digital assets, and a letter to the executor alongside the will can include further instructions for how to deal with digital assets.
The bottom line: Advisors play an important role in emergency plans for digital assets
Out of the Willful customers surveyed, only 11% have an emergency plan for their digital assets - and of those, 39% said they had just never thought about creating one. This is where advisors can fill that gap by proactively bringing up a digital asset strategy with clients so they know the risks of not creating one. In the coming years, digital assets will be as common in your clients’ portfolios as traditional assets, so it’s important to be a thought leader on this topic so your clients are prepared.
Erin Bury is the co-founder and CEO at online will platform Willful. Willful works with advisors across Canada to ensure clients have up-to-date estate plans. Find out more at willful.co/professionals.