Your Bitcoin wallet holds over $50,000, your NFT collection is worth $25,000, and your various cryptocurrency investments have grown substantially over the past few years. But when you review your estate planning documents, there's no mention of these digital assets anywhere. Without proper planning, your family could lose access to these valuable holdings forever.
The Estate Planning Attorneys at Ross & Shoalmire, P.L.L.C. help families protect their digital wealth through comprehensive estate plans that address cryptocurrency, NFTs, and other digital assets. From our offices serving over 40 counties in Texas and Arkansas, our team understands the unique challenges these modern assets present and can help you create a plan that preserves this wealth for future generations.
Traditional Estate Planning Falls Short for Digital Assets
Digital assets present unique challenges that traditional estate planning documents weren't designed to address. Most standard wills and trusts focus on physical property and traditional financial accounts, leaving cryptocurrency and NFTs in a legal gray area.
Consider the case of Marcus, a hypothetical Dallas software developer who accumulated 3.2 Bitcoin over five years. His will left "all personal property" to his wife, but when Marcus died suddenly, his wife discovered she couldn't access his hardware wallet without the private keys, which Marcus had never shared. Despite the valid will, his Bitcoin, which was worth over $200,000 at the time, remained inaccessible.
The decentralized nature of cryptocurrency means there's no bank or institution to contact for account recovery. Private keys, seed phrases, and wallet passwords are the only way to access these digital assets. Without proper documentation and planning, even a perfectly valid will cannot help your beneficiaries claim your cryptocurrency holdings.
Understanding Digital Assets in Estate Planning
Digital assets encompass more than just cryptocurrency. Comprehensive estate plans must address various forms of digital wealth that many people accumulate without considering the implications for their estate.
Cryptocurrency Holdings
Bitcoin, Ethereum, and thousands of other cryptocurrencies represent the most common digital assets people hold. These assets exist only as entries on blockchain networks, accessible through private keys or seed phrases. Unlike traditional bank accounts, there's no customer service department to help recover lost access credentials.
Suppose a Magnolia High School teacher bought Ethereum as a retirement investment. She stored her Ethereum in a mobile wallet app, but she never documented her recovery phrase. When her phone broke and she couldn't remember her wallet password, she permanently lost access to $30,000 in cryptocurrency.
NFTs and Digital Collectibles
Non-fungible tokens (NFTs) represent ownership of unique digital items, from artwork to domain names. These assets are stored in blockchain wallets similar to cryptocurrency, but their value can be highly subjective and volatile. Texas and Arkansas estate planning for NFTs requires both technical access solutions and clear instructions about valuation and potential sale.
Business-Related Digital Assets
Many people own valuable digital assets through their work or businesses. Domain names, social media accounts with substantial followings, digital marketing assets, and online business tools all have monetary value that should be addressed in modern Estate Planning.
Texas vs. Arkansas: Legal Differences in Digital Asset Estate Planning
Both Texas and Arkansas have adopted versions of the Revised Uniform Fiduciary Access to Digital Assets Act, but with some important distinctions. Understanding these differences is crucial for families with assets in both states or those considering relocating.
Texas Digital Asset Laws
Texas Estates Code Chapter 2001 (Texas Revised Uniform Fiduciary Access to Digital Assets Act) governs fiduciary access to digital assets.
The law grants executors and trustees authority to access and manage digital assets, but this authority is limited by the terms of service agreements with digital asset platforms. Texas law also recognizes the validity of specific directions regarding digital assets in estate planning documents.
Under Texas law and UCC updates (HB 4474), "virtual currency" is recognized and can be treated like other property interests that become part of the probate estate. For tax purposes, the IRS treats cryptocurrency as property. Texas imposes no additional state-level tax on crypto gains or inheritances beyond federal rules.
Arkansas Digital Asset Framework
Ark. Code Ann. § 28-75-101 et seq. provides similar protections under Arkansas's version of the Uniform Act. Arkansas gives custodians 30 days to comply with fiduciary access requests. After that, the fiduciary can seek a court order (§ 28-75-116). Texas provides 60 days for custodian compliance under § 2001.231.
The framework in both states restricts disclosure of the content of electronic communications unless the user consents or the court orders it. However, "catalog" data and other digital assets receive more permissive treatment under Arkansas § 28-75-108 and the corresponding Texas provisions.
Federal Tax Considerations
Both states must comply with federal tax law regarding cryptocurrency inheritance. The IRS treats cryptocurrency as property, meaning inherited cryptocurrency held outside tax-deferred accounts generally receives a "stepped-up basis" equal to its fair market value at the time of death. However, determining this value can be challenging for less liquid digital assets like obscure altcoins or unique NFTs.
IRS Notice 2023-27 proposes treating certain NFTs as "collectibles" depending on what the token represents. This classification could affect tax rates on inherited NFTs, making proper valuation and documentation even more critical.
Essential Steps for Including Digital Assets in Your Estate Plan
Proper cryptocurrency estate plans require specific documentation and procedures that go beyond traditional Estate Planning approaches. These steps help your digital wealth transfer smoothly to your intended beneficiaries.
Document All Digital Holdings
Create a comprehensive inventory of all digital assets, including wallet addresses, exchange accounts, and storage methods. This inventory should be updated regularly as digital asset portfolios change frequently. Include approximate values and access methods for each asset category.
To illustrate the importance of complete documentation, imagine a Texarkana business owner named Robert. He maintained detailed records of his cryptocurrency investments but failed to document his NFT purchases. When Robert died, his family found his crypto wallets but never discovered $40,000 worth of NFTs stored in a separate wallet.
Secure Access Information
Private keys and seed phrases must be stored securely but accessible to designated fiduciaries. Many attorneys recommend using a combination of secure physical storage and trusted third-party services designed specifically for cryptocurrency estate planning. Never store access information in easily hackable digital formats like email or cloud storage.
Include Specific Language in Estate Documents
Standard estate planning language often doesn't clearly address digital assets. Work with experienced Estate Planning Attorneys to include specific provisions for cryptocurrency, NFTs, and other digital holdings. These provisions should address both technical access issues and your specific wishes for how these assets should be managed or distributed.
Plan for Volatility and Liquidity Issues
Cryptocurrency values can change dramatically in short periods. Your estate plan should include guidance about when and how to liquidate digital assets, especially for beneficiaries who may not be comfortable managing volatile investments. Consider whether certain digital assets should be sold immediately or held for potential future appreciation.
Special Considerations for Different Types of Digital Assets
Different categories of digital assets require tailored planning approaches. What works for Bitcoin storage and inheritance may not be appropriate for NFT collections or business-related digital assets.
Cryptocurrency-Specific Estate Planning
Most cryptocurrencies should be treated like any other investment asset in terms of distribution preferences, but the technical aspects require special attention. Consider establishing trusts specifically for cryptocurrency holdings, especially for minor beneficiaries who shouldn't have immediate access to volatile investments.
NFT and Collectible Strategies
NFTs present unique valuation challenges because their worth can be highly subjective and dependent on market trends that may not persist. Your estate plan should include specific instructions about how to value these assets and whether they should be sold or retained for sentimental reasons.
Some NFT collections have cultural or artistic significance beyond their monetary value. Work with your Estate Planning Attorneys to create provisions that respect both the financial and personal importance of these digital collectibles.
Business Digital Asset Succession
Digital assets connected to business operations require coordination with business succession planning. Social media accounts, domain names, and online marketing assets may be crucial for business continuity. These assets need to be treated differently from personal investment accounts.
Work With Estate Planning Attorneys Who Understand Digital Assets
Digital asset Estate Planning requires the guidance of legal professionals who understand both traditional estate law and emerging technology issues. The Attorneys at Ross & Shoalmire, P.L.L.C. stay current with developments in cryptocurrency law and digital asset management to provide comprehensive planning for modern families.
Proper digital asset planning involves coordination between estate planning, tax planning, and technology considerations. Our team works with families to create comprehensive solutions that address all aspects of digital wealth transfer while maintaining security and privacy throughout the process.
Your digital assets represent real wealth that deserves the same careful planning attention as your traditional investments and property. Our experienced Estate Planning Attorneys serve clients throughout Texas and Arkansas and can help you create a comprehensive plan that addresses all aspects of your modern financial life.
