KEY POINTS What is the issue?
What does it mean for me?
The digital tsunami meets estate administration SHARON HARTUNG AND JENNIFER L ZEGEL DISCUSS LESSONS TO BE LEARNED FROM THE CANADIAN QUADRIGA DEBACLE AND HOW IT INFORMS ESTATE PLANNING AND ESTATE ADMINISTRATION
This highlights the need for pre-planning, especially where digital assets are concerned. The financial or emotional significance attached to various digital assets and the potential loss of access should alarm estateplanning professionals, when digital estate planning is neglected.
The death of Gerald Cotten, his company Quadriga and its large Canadian cryptocurrency exchange QuadrigaCX has revealed dramatic implications for estate planning. Cotten’s story unravelled on social media, where clients complained about their inability to withdraw funds from their QuadrigaCX accounts, speculating about what happened to the funds held by the exchange.1 Cotten died without leaving information about the digital keys required to access the company’s encrypted vaults and wallets where most of the account holder funds resided. Given the inability of QuadrigaCX account holders to access their holdings, the company was forced into bankruptcy trying to recover funds for the creditors and account holders. However, consider this: what little information the investigation and bankruptcy proceedings were able to find about the dealings and transactions of the exchange is a harbinger of what might happen if a fiduciary is unable to access the digital assets of a deceased or incapacitated person. Even more compelling was the amount of digital information and electronic communications for the exchange unable to be accessed, even with the approval of regulatory powers, expertise and money to engage professionals.2
What can I take away? A knowledge of the pre-planning tools that all practitioners should have at their disposal to process estates with digital assets.
Sharon Hartung TEP is the author of Your Digital Undertaker and Jennifer L Zegel TEP is a Partner at Kleinbard
Gerald Cotten, Chief Executive and founder of cryptocurrency exchange QuadrigaCX, died without leaving information about the digital keys that provided access to account holders’ funds, with disastrous consequences.
ESTATE ADMINISTRATION OF DIGITAL ASSETS BEGINS WITH AN INVENTORY The Quadriga incident highlighted the need for pre-planning, as well as the hurdles to fiduciary access resulting from impenetrable hardware and software,3 juxtaposed against the basic steps of handling assets in an estate administration. Fundamentally, there are four observations about handling digital assets and devices that illustrate how ST E P J O U R N A L I S S U E 6 2 0 2 0
BLACK YELLOW MAGENTA CYAN
a fiduciary’s duties could be easily frustrated in an estate administration if the decedent had not sufficiently planned ahead. Inventory Of significance for any estate is scouring hardware devices for digital assets such as cryptocurrencies, photos, manuscripts or other information related to physical assets. Gaining entry to encrypted devices is problematic and likely expensive. Even if these devices can be lawfully accessed by the fiduciary, access may not be technically possible. Many jurisdictions have implemented laws governing a fiduciary’s ability to access a user’s digital assets, but the rules are not uniform. Most jurisdictions that have digital asset access laws allow a fiduciary to enter a decedent’s computer or device. Even if the decedent left instructions on where to search, if devices are encrypted or the access information to the device is not readily available, the legal authority granted may be useless without proper planning.