Future Returns: Protecting And Managing Digital Assets
How to keep your crypto and NFTs safe.
4 min
For investors in digital assets like cryptocurrencies and non-fungible tokens (NFTs), it’s necessary to take special estate planning considerations into account. But a recent study conducted by the Northern Trust Institute suggests some investors are slow to adopt these measures, potentially putting their investments at risk after they die.
The Chicago-based wealth manager firm surveyed nearly 250 high-net-worth investors, uncovering critical estate planning gaps for digital assets, despite more than half of those surveyed owning crypto and NFTs. Only 42% of those surveyed said all their digital accounts and online management tools were incorporated into their estate plan. For 20%, none have been incorporated.
This survey, conducted last year for Northern Trust’s 2022 Wealth Planning Outlook suggests there are demographic differences among investors based on generation and estate size. When asked if their plan has a full accounting of traditional and digital wealth accounts, 78% of millennials said their plan did, compared to 59% of investors born before 1945. While 75% of those with estates of US$5-to-US$10 million have made this full accounting, the rate declines to 55% for those with US$50-million plus. Respondents with higher asset levels were also more likely to own investments in digital assets.
Without access to critical information or the assets themselves, heirs are left with the added burden of incomplete transparency—a particular challenge when settling complex estates.
One reason it’s critical to pay special attention to these assets is that the category continues to evolve. “The tax implications of digital assets like crypto and NFTs are also currently under debate and continued regulation is likely,” Northern Trust said in its report.
Jon Jackson, central region practice leader for estate settlement services at Northern Trust Wealth Management says it’s necessary to be proactive. “Especially for a rapidly evolving asset class such as digital assets, review your plan frequently to take advantage of the legislative and technical changes that are likely to occur with such assets.”
In a recent interview, Jackson shared with Penta how individuals and families can ensure peace of mind with their digital estates.
Create an Inventory and Paper Trail
“The first step is to start with an inventory,” Jackson says. This includes detailed records of assets, the digital wallets in which they’re stored, and any crypto keys. Private keys, the passwords used to manage and access cryptocurrencies, may be informally written down or memorized, which can cause access issues after an investor dies if not safely stored.
The survey suggests 59% of respondents have included only some of their digital accounts or none at all into their estate plan. Estate planners and fiduciaries can’t evaluate digital assets without necessary guidance to access them, which makes sharing this information critical.
“In the best case scenario, (not leaving information) could lead to extra time and expense to track down the information, and possibly even litigation to access the accounts,” Jackson says. In the worst, most extreme cases, he adds that “not having the right password could lead to losing the entire asset.”
Horror stories about lost crypto keys have made global headlines. New York blockchain data firm Chainalysis suggests that about one in five of existing Bitcoin—a figure they once valued at US$140 billion, but is likely less because of the currency’s falling value—are in lost or inaccessible wallets.
Lock in a Digital Fiduciary
Whenever a client enters a new asset class, Jackson says it’s necessary to consult with an attorney and estate-planning advisors. This ensures estate plans cover the assets and allow fiduciaries to properly control them and pass them to future beneficiaries, whether through probate, or where possible, using beneficiary designations or revocable trusts.
“Consider specific language for handling digital assets in your estate, including a digital fiduciary, rather than relying on more general provisions of estate assets,” he says. (It’s also important to check on the requirements for a digital assets fiduciary which can vary between jurisdictions.)
Northern Trust’s survey suggests the people set up to use online management tools post-death are spouses, children, or parents. The intended fiduciary needs to be “not only willing to take on the responsibilities of setting your estate, but also the responsibility of managing these types of complicated assets,” Jackson says. About 90% of fiduciaries have been informed, according to survey responses, yet of those informed only 89% have stated they are willing to act on the investor’s behalf in this critical role.
Prepare for Volatility and Tax Implications
Digital asset investors aren’t strangers to volatility, but this can create unique impacts on estates. “The volatility of the asset class, and the time it may take to access the asset, makes them riskier for administration purposes, more so than valuation issues,” says Jackson.
Due to constant price fluctuations, these assets can pose challenges to value for estate and gift tax purposes. If an investor’s net worth is above or near the federal estate tax exemption (US$12.06 million as of 2022), cryptocurrency investments must be closely monitored. Because the IRS treats crypto as property for tax purposes, there’s also the issue of assessing capital gains and losses.
“Because many cryptocurrencies are held and traded on exchanges, those types of digital assets aren’t necessarily hard to value for estate and gift purposes,” Jackson says.
Other types, such as NFTs for digital artwork, sports collectiles or digital real estate, require hiring a qualified appraiser. Given “the unique nature of the asset and limited market data,” digital assets like those are more complicated to value. Jackson likens them to rare paintings, in that both are subject to the professional opinions of appraisers and the IRS to determine value.
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Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Government spending, including Biden’s Inflation Reduction Act, has helped drive a gap between clean-energy spending and fossil-fuel investments
3 min
Investments in solar power are on course to overtake spending on oil production for the first time, the foremost example of a widening gap between renewable-energy funding and stagnating fossil-fuel industries, according to the head of the International Energy Agency.
More than $1 billion a day is expected to be invested in solar power this year, which is higher than total spending expected for new upstream oil projects, the IEA said in its annual World Energy Investment report.
Spending on so-called clean-energy projects—which includes renewable energy, electric vehicles, low-carbon hydrogen and battery storage, among other things—is rising at a “striking” rate and vastly outpacing spending on traditional fossil fuels, Fatih Birol, the IEA’s executive director said in an interview. The figures should raise hopes that worldwide efforts to keep global warming within manageable levels are heading in the right direction, he said.
Birol pointed to a “powerful alignment of major factors,” driving clean-energy spending higher, while spending on oil and other fossil fuels remains subdued. This includes mushrooming government spending aimed at driving adherence to global climate targets such as President Biden’s Inflation Reduction Act.
“A new clean global energy economy is emerging,” Birol told The Wall Street Journal. “There has been a substantial increase in a short period of time—I would consider this to be a dramatic shift.”
A total of $2.8 trillion will be invested in global energy supplies this year, of which $1.7 trillion, or more than 60% will go toward clean-energy projects. The figure marks a sharp increase from previous years and highlights the growing divergence between clean-energy spending and traditional fossil-fuel industries such as oil, gas and coal. For every $1 spent on fossil-fuel energy this year, $1.70 will be invested into clean-energy technologies compared with five years ago when the spending between the two was broadly equal, the IEA said.
While investments in clean energy have been strong, they haven’t been evenly split. Ninety percent of the growth in clean-energy spending occurs in the developed world and China, the IEA said. Developing nations have been slower to embrace renewable-energy sources, put off by the high upfront price tag of emerging technologies and a shortage of affordable financing. They are often financially unable to dole out large sums on subsidies and state backing, as the U.S., European Union and China have done.
The Covid-19 pandemic appears to have marked a turning point for global energy spending, the IEA’s data shows. The powerful economic rebound that followed the end of lockdown measures across most of the globe helped prompt the divergence between spending on clean energy and fossil fuels.
The energy crisis that followed Russia’s invasion of Ukraine last year has further driven the trend. Soaring oil and gas prices after the war began made emerging green-energy technologies comparatively more affordable. While clean-energy technologies have recently been hit by some inflation, their costs remain sharply below their historic levels. The war also heightened attention on energy security, with many Western nations, particularly in Europe, seeking to remove Russian fossil fuels from their economies altogether, often replacing them with renewables.
While clean-energy spending has boomed, spending on fossil fuels has been tepid. Despite earning record profits from soaring oil and gas prices, energy companies have shown a reluctance to invest in new fossil-fuel projects when demand for them appears to be approaching its zenith.
Energy forecasters are split on when demand for fossil fuels will peak, but most have set out a timeline within the first half of the century. The IEA has said peak fossil-fuel demand could come as soon as this decade. The Organization of the Petroleum Exporting Countries, a cartel of the world’s largest oil-producing nations, has said demand for crude oil could peak in developed nations in the mid-2020s, but that demand in the developing world will continue to grow until at least 2045.
Investments in clean energy and fossil fuels were largely neck-and-neck in the years leading up to the pandemic, but have diverged sharply since. While spending on fossil fuels has edged higher over the last three years, it remains lower than pre pandemic levels, the IEA said.
Only large state-owned national oil companies in the Middle East are expected to spend more on oil production this year than in 2022. Almost half of the extra spending will be absorbed by cost inflation, the IEA said. Last year marked the first one where oil-and-gas companies spent more on debt repayments, dividends and share buybacks than they did on capital expenditure.
The lack of spending on fossil fuels raises a question mark around rising prices. Oil markets are already tight and are expected to tighten further as demand grows following the pandemic, with seemingly few sources of new supply to compensate. Higher oil prices could further encourage the shift toward clean-energy sources.
“If there is not enough investment globally to reduce the oil demand growth and there is no investment at the same time [in] upstream oil we may see further volatility in global oil prices,” Birol said.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
