Investing your Cryptoassets in a Trust

Introduction

Remember a world without the Internet? Soon we will be saying the same about cryptoassets (crypto from here-on-in). The number of people investing in crypto is rapidly growing, and for some people and families, it is creating life-changing generational wealth. The more it is used, the more people will flock to it as a long-term store of value. This presents a number of planning opportunities for people to preserve their new-found wealth and to ensure it is passed down to future generations safely, and tax efficiently. Investing crypto in a Trust is a solution that can offer more than just tax savings however.

Benefits of Investing in a Trust

One of the major benefits of investing your crypto in a Trust, is that it can reduce the risk of it being lost after you die. Better still, it keeps your crypto investments out of probate, saving your beneficiaries time and money, and offering more privacy around your crypto wealth and holdings. This further reduces the risk of exposure to digital attacks on your wallets. Investing crypto in a Trust enables you to appoint a trusted person to access and manage your crypto holdings, by creating clear wishes on how it can be accessed and used, even after death.

Quick Access

If your crypto is distributed through a will, or if no allocations are made prior to death, it will form part of the process of probate. The probate process considers any will in place, together with property values, other asset values, taxes and debts of the estate, and is a formal legal process that must be completed before your beneficiaries receive any distributions or access to assets from your estate. This process can take weeks or months, with the official value of your estate’s assets being determined at the date of death.

Crypto is still seeing very significant price movements, and even in a more mature market there are likely to be quick and large price adjustments against certain coins, tokens and assets. The length of the probate process could have significant implications for your beneficiaries if they are unable to gain access to your wallets in order to sell during a bear market, or indeed buy during a bull market. Given holding crypto in a Trust removes it from the probate process, this of course allows your Trustees/beneficiaries to access your wallets immediately, with the added advantage of avoiding additional legal costs within the probate process.

Privacy and Security

One of the main advantages of the blockchain is its decentralised nature, and the ability to perform financial transactions anonymously, securely, quickly, cheaply and peer-to-peer. The probate court process becomes public record, exposing your crypto wealth to anyone interested enough to access the records. Trust documents on the other hand are not public record, meaning your personal financial affairs in regards to crypto can remain private, as intended.

A realistic fear of many crypto investors is the potential for permanent loss of any holdings after death. Any crypto held in a hot wallet (non-custodial) has no paper trail or any other easily accessible information or documentation in the event of sudden death. Similarly, hardware wallets such as Trezor, are not necessarily going to be easy to locate or access. There are no doubt already many cases where wallets have been unknown or lost, and even if they have become known and available for use, the crypto has never been recovered because the next-of-kin did not have the private keys to claim ownership.

Investing crypto in a Trust relies on the Trustees being able to access and manage your holdings in accordance with your directive, meaning the management of  crypto investments can carry on as normal immediately after death. As with other assets, it’s necessary to have a clear and well-planned directive for transfer and use of crypto after death. Because knowledge of the private keys indicates who owns the wallets, no court process or agency can declare your beneficiary the owner if the private keys are lost. If you are utilising an exchange or brokerage account to invest, ensure that your trust has a clear directive on transferring account ownership or control to your beneficiaries. Of course it’s important to have a clear and secure method of protecting your private keys prior to transferring control, as well as during the transfer process, so only the beneficiaries of the crypto know the private keys.