Legacy and estate planning is crucial for cryptocurrency holders because, unlike traditional assets, cryptocurrencies are not regulated by centralized authorities, making it difficult for heirs to access them after the owner’s death. But proper planning can ensure that digital assets are successfully transferred to loved ones and beneficiaries, as Adam Blumberg writes today.
Also in today’s newsletter, Krisztian Sandor explains how digital asset-backed mortgages let house buyers use their crypto holdings as collateral.
By the way, don’t forget to check out CoinDeskMarkets.com, where we provide helpful tools for digital asset investors and advisors.
As we move from simply buying crypto assets to participating in on-chain protocols and holding tokenized securities, the need for proper legacy planning will only increase, creating opportunities for financial advisors to add value.
To provide value to clients in legacy planning, financial advisors can begin by asking the following typical questions: “Do you own crypto assets?” “How are you holding those assets?” and “Have you thought about what happens to your crypto when you’re not here?”
The next step would be to create an up-to-date inventory of client assets. Centralized custodians provide APIs that can feed into some reporting tools. There are also new reporting and management tools like Kubera that already have the ability to provide traditional and crypto assets in one package.
If the client hasn’t prepared to pass their crypto on, that is usually the next step. Most custodial accounts do not provide the transfer-on-death abilities, so the advisor will need to help the client make those arrangements.
If the client is holding assets in hard or soft wallets, multisig wallets or vaults, the advisor now has even more value to provide. Access is often more critical than legal ownership in this case, so advisors should help clients make arrangements for transferring seed phrases or private key material to their heirs. We’ve all heard the horror stories of people dying without leaving the keys to heirs.
Education is a crucial part of the crypto legacy plan, which differs from traditional asset planning. In my case, I need to make sure my daughter understands how to use the keys I leave her and some investment philosophy behind my decisions. I don’t want her having to go to the internet and ask how to use the 24 words Daddy left behind, as that is a sure way to get scammed. I also want her to know I have a 5-10 year time horizon and to understand my plan for hodling vs. selling.
Crypto Mortgages: How You Can Buy a House Using a Crypto-Backed Loan
(Unspash, modified by CoinDesk)
On a high level, crypto mortgages work in a similar vein as old-fashioned mortgages. The only difference is that the collateral are digital asset holdings.
If you take out a crypto mortgage, the lender first checks your crypto holdings to assess how much you can borrow. This is the most important factor in the decision, because crypto mortgage lenders won’t necessarily require credit history and paycheck stubs, although it doesn’t hurt to have those ready.
After the lender decides the terms – how much you can borrow and at what annual interest rate – you have to pledge an amount of your crypto holdings to the lender as collateral of the loan. That is usually equal to 100% of the loan. For example, the collateral would be $400,000 worth of digital assets for a $400,000 loan.
When you close the loan and buy the real estate, you start paying back the loan in monthly installments that can be paid in selected cryptocurrencies or in traditional fiat.
As the market grows and competition increases between lenders for homebuyers’ crypto riches, one can expect offerings and accepted digital assets to broaden.
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The events are unconnected, but crypto has a role to play in the wider political realignment questioning the sanctity of central banks and established powers.
With U.S. regulations coming soon, the frauds, schemes and irresponsible investment management practices that led to the current market downturn will be things of the past, reasons Paul Brody of EY.
Congrats on making it this far! On occasion, we’ll give our loyal Crypto for Advisors readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement to the users who create it.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
