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Digital Makeover: Estate Planning Edition
To avoid disappointment at the outset and be totally up front, I’m not here to announce some digital asset rebooted version of Extreme Makeover: Home Edition, although the mere thought of that show does bring a flood of youthful nostalgia my way.
I do, however, find bricks and mortar terminology useful when discussing estate planning with clients. First, you have to prepare the site, then lay the foundation, build the structure (comprising several levels perhaps), and eventually construct the roof to enclose and protect the entire structure. Sometimes, in estate planning, we build ab initio. In other cases, it’s an extension or perhaps just a much needed facelift or renovation.
So why do I mention digital assets? This is not simply a consideration for crypto enthusiasts and proponents of all things decentralisation. Digital is going mainstream, not simply by reference to the current value of BTC or ETH but also by the more widespread adoption of blockchain technology through areas like tokenisation and the use of NFTs to determine the provenance and authenticity of goods.
Digital may even mean simply the passwords to access your moderately successful side hustle business on eBay or Amazon.
So, as we move into an era of increased digitisation both in terms of how we store personal information and, of course, store value, enquiries from clients are building on how to approach digital assets from a trust and succession planning perspective. So, let’s see how the good old world of law is adapting and navigating in this space.
Wills: The Foundation
Enter the foundational piece of estate planning – the Will. A Will is not simply for old people as, sadly, it is not just the elderly who are vulnerable to kicking their mortal coil. Some might ask what a document, which derives its essential legal framework from the year 1837, has to say on digital assets. However, this is not about making bequests of the ancient family heirlooms or even preventing an intestacy scenario, but about ensuring that your cryptoassets do not end up in the digital abyss.
Without access to the access key, where is the value? Fundamentally, without a key to the safe, its contents are rendered worthless.
Lifetime Trusts: The Next Level Of Protection
Now, let’s talk about lifetime trusts. The word gets thrown around, but what exactly is a trust?
In short, a trust is a legal arrangement where one person or entity (the trustee) holds and manages assets for the benefit of another person or persons (the beneficiary), in accordance with certain rules or terms.
With a trust, as with a Will (albeit in a more existential sense with a Will), you have to accept a degree of control being lost. Setting up a trust for your cryptoassets means appointing a trustee, a guardian or custodian for your digital fortune. The trustee will navigate the crypto maze, ensuring your assets are in safe hands, and held for the benefit of your loved ones.
This trust might be established with tax, asset protection and succession planning in mind, or perhaps even a combination of all these factors.
Communication: The Roof
Legal structures and documents do not serve merely as the framework for rules. If done correctly with the advisor understanding the asset class, the legal work also serves as an effective communication tool. Whether it’s a traditional family business or the family home, communication is arguably as important as the legal framework itself. What good is the structure without the roof on top? So remember, communication is the key to a smooth transition and this is no less applicable to digital assets.
Create a digital treasure map, an inventory of your cryptoassets, passwords, and access codes. Share this map with your chosen executor or trustee. It’s like passing on the key to the crypto kingdom, ensuring your heirs do not end up in a digital maze brought about less by your doing and more by your inaction.
Let that oft-quoted crypto term be true, WAGMI. We’re All Gonna Make It, indeed, but what is your legacy plan and is it time for a digital makeover…estate planning edition?
For tax and private client advice and services, please contact Ben Rosen via our contact form below.
Retrieving Stolen Crypto In The UK Has Never Been Easier
The legal grey zones in cryptocurrencies have been an underlying concern for investors and the public. The struggle to regulate cryptocurrencies exposes crypto owners to risk of theft by cybercriminals, with a record of approximately $3 billion worth of cryptocurrency being stolen in 2022.
With over 2 million people in the UK who are possessing and using cryptocurrency, the UK legal system is trying to catch up. Crypto theft victims can now seek to recover their lost assets through the legal proceedings via the civil courts.In this article, we will discuss the recent two High Court cases demonstrating the ability of the Courts in England and Wales to flexibly apply the law to issues arising out of crypto asset transactions.
If You Can Trace Back Your Crypto You Can Keep It
In Jones v Persons Unknown [2022] EWHC 2543 (Comm), the Claimant had been fraudulently convinced to transfer 89.61616088 in Bitcoins to a fake crypto-investment platform. His Bitcoins were traced to a wallet associated with the company Huobi, a Seychelles-based cryptocurrency exchange. A worldwide freezing injunction was obtained against the persons unknown and a proprietary injunction against Huobi.
Due to the complexity of the Defendants in this case, it is helpful to set out who they are individually:
- First Defendant (Persons Unknown)- the people or companies who fraudulently obtained access to the Claimant’s bitcoin accounts between 22 January 2019 and 10 January 2020 and conducted the transactions which transferred the cryptocurrencies held in those accounts to other accounts.
- Second Defendant (Persons Unknown) – The people or companies who own or control the accounts into which the Bitcoin was transferred for less than full value.
- Third Defendant (Persons Unknown) – The people or companies who are innocent receivers who have no reasonable grounds for thinking that what has appeared in their account belonged to the Claimant)
- Fourth Defendant – Huobi Global Limited
The Court was asked to decide on the following:
- An application for a summary judgement against the First, Second, and Fourth Defendants.
- An order for delivery-up of Bitcoin from the Fourth Defendant.
- Maintenance of the interim proprietary and non-proprietary injunctions, and a final proprietary injunction preventing the disposal of the Claimant’s Bitcoin.
- The service of an out-of-jurisdiction order on the First, Second, and Fourth Defendants.
- Permission for service to the First, Second, and Fourth Defendants by an air-drop of a non-fungible token into the Fourth Defendant’s wallet.
The High Court ruled that the Claimant was entitled to judgement against the fraudsters for deceit and unjust enrichment. Therefore, he was eligible to have the Bitcoin, or its value equivalent, returned. In addition, Huobi was declared a constructive trustee in respect of the fraudulently transferred Bitcoin and so the Claimant was entitled to an order for the delivery-up of his Bitcoin by Huobi.
How Disclosure Application Can Help Identify Thieves
In LMN v Bitflyer Holdings Inc [2022] EWHC 2954 (Comm), the hackers transferred millions of dollars’ worth of cryptocurrency from the Claimant’s computer systems in 2020. An expert traced the cryptocurrency transfer through 26 recipient exchange addresses and discovered that these exchanges were all operated by one of the Defendants or companies belonging to the same group. Furthermore, the exchanges were located in several foreign jurisdictions.
In order to further trace the misappropriated cryptocurrency, the Claimant required ‘Know Your Client’ and other anti-money laundering information from the various exchanges and third parties.
The Court granted the information orders sought by the Claimant, relying on two strands of case law authority, namely;
- Norwich Pharmacal Co v Comrs of Customs and Excise [1974] AC 133
- Bankers Trust Co v Shapira [1980] 1 WLR 1274.
The latter’s jurisdiction arises when there is robust evidence that the Claimant’s property has been misappropriated. Norwich Pharmacal “allowed a claimant to seek disclosure from an “involved” third party who had information enabling the claimant to identify a wrongdoer so as to be in a position to bring an action against the wrongdoer where otherwise he would not be able to do so” [para 18].
In addition, Bitflyer Holdings is one of the first decisions in which the Court has granted permission to serve proceedings outside the jurisdiction under the new Gateway for Information Orders (GIO). These orders were introduced in October 2022 to facilitate the making of Norwich Pharmacal and Bankers Trust applications against Defendants overseas. GIO apply where there is an application for disclosure in order to obtain information regarding the true identity of a potential Defendant and/or what has become of the Claimant’s property, with a view to issuing proceedings that are intended to be commenced in England and Wales.
What These Decisions Mean For Cryptocurrency Litigants
Both these decisions are incredibly important in the Wild West environment of cryptocurrency. One of the advantages of trading in cryptocurrency is the elevated level of anonymity it provides. The other side of this is that fraudsters, money launderers, and other shady characters are drawn to cryptocurrency like moths to a flame. These decisions highlight that English Courts are not only willing to treat cryptocurrency as a form of property and to make orders aimed at assisting the recovery of stolen cryptocurrency, but they are also alive to the fact that the law must move quickly to protect Claimants’ rights, especially when Parliament may be slower to legislate. Ultimately, these decisions confirm both that England and Wales is a favourable jurisdiction for those conducting business that involves crypto assets and that, should fraud take place, there are strategies available to seek a recovery.
Quastels LLP has the expertise to protect and recover your digital assets. For legal advice on protecting your digital assets, please call +44 (0)20 7908 2525.