How Are Digital Assets Handled In Probate?

Handling Digital Assets in Probate: Challenges and Considerations

What Are Digital Assets?

• Social media accounts (e.g., Facebook, Instagram)
• Email accounts (e.g., Gmail, Yahoo)
• Digital media (e.g., photos, music, and videos stored in the cloud)
• Cryptocurrencies (e.g., Bitcoin, Ethereum)
• Non-fungible tokens (NFTs)
• Online investment or bank accounts
• Domain names and websites

How Digital Assets Are Handled in Probate

1. Providing Documentation: The executor must present documents like the court’s order for probate and the letters of administration to the company holding the digital asset. These documents verify that the executor has legal authority to manage the decedent’s assets.
2. Requesting Access: Once the proper documentation is provided, the executor can request access to the digital asset. For instance, if the decedent had a PayPal account, the executor would approach PayPal with the court’s documentation to request control over the funds.
3. Transferring the Asset to the Estate: After access is granted, the executor can move the asset into the estate for eventual distribution to beneficiaries. In many cases, this process is straightforward, particularly when there’s a centralized company or service provider managing the asset.

Unique Challenges of Cryptocurrencies and Blockchain Assets in Probate

1. Understanding Wallets: Hot and Cold Storage: Cryptocurrencies are stored in digital wallets, which can be either “hot” (connected to the internet) or “cold” (offline, such as a physical device or a printed code).
   • Hot Wallets: These are accessible via online platforms and may be easier to transfer if the executor has the correct passwords and security information.
   • Cold Wallets: Cold wallets present a particular challenge because they require a private key or passcode to access. This information is often not stored anywhere online, so if the decedent did not share their private key, retrieving these assets may be impossible.
2. Security Protocols and Irreversible Transactions: One of the defining characteristics of cryptocurrencies is that transactions are typically irreversible. If an executor cannot access a cryptocurrency wallet due to missing passwords or keys, there is no recovery process. Unlike a bank, which can verify an executor’s legal authority and provide account access, blockchain networks do not have an administrator or customer service department to facilitate asset recovery.
3. Lack of a Centralized Authority: Assets on the blockchain, including Bitcoin and NFTs, exist in a decentralized system, meaning there’s no single entity to petition for access. This differs greatly from traditional digital assets like bank accounts, which have established procedures for transferring ownership in probate. The decentralized nature of blockchain technology is central to its appeal but complicates estate administration, as there’s simply no entity for executors to contact for assistance.

Potential Solutions and Precautions for Managing Digital Assets

1. Store Passwords and Keys Securely: To avoid issues with accessing digital assets, individuals should consider storing their passwords and private keys in a secure location. Options include:
   • Password managers: These tools can securely store login information and be accessed by authorized individuals with a master password.
   • Secure physical storage: For those holding cryptocurrency in a cold wallet, it’s wise to write down the private key and store it in a safe deposit box or with a trusted third party.
2. Create a Digital Asset Plan in the Will: Including a digital asset management plan in a will or estate plan is highly recommended. This plan should specify what digital assets exist, where they’re stored, and who should manage them. Be as detailed as possible, including account information, passwords, and access instructions.
3. Appoint a Digital Executor: Some states recognize digital executors, individuals specifically appointed to manage digital assets. While California law does not explicitly grant authority to digital executors, designating someone to handle digital assets can still streamline the process and provide clarity on who should access these assets.
4. Consider Using a Digital Vault: A digital vault is an online service that allows users to store important information, including login credentials, documents, and instructions for managing digital assets. In the event of the account holder’s death, the executor or designated person can gain access with the appropriate credentials or authorization.

The Future of Digital Assets in Probate

• Revised probate laws that address digital assets: California may eventually update its probate code to include provisions for digital assets, including guidelines on accessing and managing cryptocurrency and blockchain assets.
• Increased recognition of digital executors: As more people designate digital executors in their estate plans, it’s possible that California will formally recognize this role, making it easier for executors to manage digital assets without facing legal gray areas.
• Standardized procedures from digital service providers: Companies that manage digital assets, such as social media platforms and cryptocurrency exchanges, may begin implementing more standardized procedures for handling accounts in probate to make it easier for executors to gain access.