Virtual Assets: Estate Planning and Administration
In today’s increasingly digital world, questions are inevitably arising with regard to the transferability of virtual assets (also referred to as digital assets) such as cryptocurrencies, upon the death of the owner.
A person may treat with property that they own, upon their passing, in accordance with their wishes whilst they are alive and such wishes may be reduced into writing in the form of a Will. In order for a Will to be valid in Trinidad and Tobago it must have been executed in accordance with the statutory formalities as contained in the Wills and Probate Act Chap 9:03. Namely it must be in writing, it must be signed at the foot or end thereof by the testator in the presence of two witnesses who must each sign in the presence of each other and of the testator. In addition, the testator must have the capacity to make a Will (legal and mental) and they must not be under any undue influence or pressure when making the Will.
Estate Administration in Trinidad and Tobago
When someone dies with a valid Will it is said that that person has died testate. On the other hand, an individual who departs this life without leaving a valid Will has died intestate. For persons who died testate, the appropriate procedure is to apply to the Probate Registry, at the High Court, for a Grant of Probate. Where someone dies without a valid Will; or where the executor dies before the testator or renounces his office the appropriate application would be for a Grant of Letters of Administration or Grant of Letters of Administration with Will Annexed respectively.
The legal personal representative of a deceased person can either be the named executor in a Will or someone who has obtained a Grant of Administration. When a Grant of Probate is obtained the estate is then distributed in accordance with the terms of the Will whereas for a Grant of Letters of Administration, the estate is distributed according to the rules of intestacy contained in the Administration of Estates Act Chap 9:01.
An estate for which a Grant of Letters of Administration with Will Annexed is granted is distributed according to the terms of the Will. These types of applications deal with the personal and real property of the deceased. Real property refers to land whilst personal property would include personal belongings, cash, jewellery, artwork and the like. A typical list of items that form part of the Inventory for an estate can be seen in Form 22 in the Wills and Probate Act.
Overseas Approaches to Devising Virtual Assets
To be clear, neither the Wills and Probate Act, the Administration of Estates Act nor the Succession Act contemplates the existence of virtual assets and therefore at present, there are no statutory provisions which govern what is to occur with virtual assets, such as cryptocurrencies, when the account holder dies. Trinidad and Tobago is not unique in this regard as only recently the UK Law Commission published its report entitled “Digital Assets” in which several recommendations were made. The report posits that personal property legislation has been sufficient to cover digital assets in the past. Additionally, the common law has sufficient flexibility to treat with such assets. However, appropriate legislative intervention was recommended to avoid legal uncertainty. With this in mind, amendments have been made to their Financial Services and Markets Act.
The Uniform Law Conference of Canada has developed the Uniform Access to Digital Assets by Fiduciaries Act which, at the time of writing, has been adopted by the legislative assembly of four provinces. The model legislation provides fiduciaries with a right of access to the digital assets of a deceased individual subject to the terms of their Will or a Court Order. A named executor in the Will of a deceased person would be considered a fiduciary for the purposes of that legislation.
At the time of writing, under Missouri State law, a fiduciary, with authority over the property of the deceased, has the right to access a digital asset in which the deceased had a right or interest once that right or interest is not held by a custodian or subject to a terms of service agreement.
What are virtual assets?
It is no secret that people in Trinidad & Tobago, like many other persons worldwide, are investing in virtual assets. While the exact statistics for Trinidad & Tobago are unknown, in April 2023, Michelle Faverio and Olivia Sidoti reported for The Pew Research Center that 17% of Americans are said to have invested in, traded or used a cryptocurrency (one type of virtual asset). But what are virtual assets?
The Financial Action Task Force (FATF) defines virtual assets “as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.”
This definition excludes digital representations of fiat currencies such as the Trinidad & Tobago Dollar, United States Dollar etc. In the 2023 Investopedia article, entitled “Digital Asset: Meaning, Types, and Importance”, Jake Frankenfield defined a digital asset as
“…anything digital that has value, establishes ownership, and is discoverable for e.g. photos, manuscripts, documents, data, cryptocurrencies, and much more.”
Non-fungible tokens (NFTs) and even domain names and emails may be considered digital assets in today’s world. However, for the purpose of this article, FATF definitions will be considered and utilized.
FATF also defines cryptocurrency as “a decentralized convertible virtual currency that is protected by cryptography. — i.e., it incorporates principles of cryptography to implement a distributed, decentralized, secure information economy. Cryptocurrency relies on public and private keys to transfer value from one person/entity to another, and it must be cryptographically signed each time it is transferred.” Cryptocurrency can be either stored online or offline.
Digital wallets are not virtual assets however, these wallets may hold information concerning virtual assets e.g. encryption keys or cryptography keys. A wallet may either be custodial — where the private key is shared with the digital wallet company; or non-custodial — where the private key is not shared with the digital wallet company.
Regulatory oversight in Trinidad & Tobago
There are three primary regulators in the local fintech sector in Trinidad & Tobago — the Trinidad & Tobago Securities & Exchange Commission (TTSEC), the Central Bank of Trinidad & Tobago (CBTT) and the Financial Intelligence Unit of Trinidad and Tobago (FIUTT). While virtual assets, such as cryptocurrencies, are not currently legislated in Trinidad & Tobago, these assets will generally fall under the umbrella of the fintech industry and they are currently just left to be assessed, on a case-by-case basis, to determine if they are securities under the Trinidad & Tobago law.
Section 4 (1) of the Securities Act (as amended) widely defines a security as inter alia, “any document, instrument or writing evidencing ownership of, or any interest in, the capital, debt, property, profits, earnings or royalties of any person and without limiting the generality of the foregoing…” followed by sub-sections with different things that are considered a security, inclusive of an “investment contract” and its constituent parts as defined in the United States case of SEC v. W.J. Howey Co. 328 U.S. 293 (1946) (also known as the “Howey test”).
Whether or not virtual assets can be properly and fairly categorized, on a case-by-case approach, using our current legal definition of a security is yet to be seen.
Risks associated with cryptocurrencies
Persons are at liberty to approach various cryptocurrency exchanges to join, purchase and start trading in cryptocurrency. Like with any investment, there may be potential risks. Some of these risks are that:
(i) cryptocurrencies are not managed by any centralised issuing authority or backed by any precious metal such as gold or silver; or even by fiat currency
(ii) the value depends on the value that other owners and investors ascribe to them which makes the value volatile — subject to sharp price fluctuations
(iii) due to the decentralised nature of these assets, the nodes of a cryptocurrency transaction can be located in different jurisdictions which may mean that it could be subject to conflicting legal frameworks
(iv) trading cryptocurrency against fiat currency can be difficult
(v) they are not widely accepted worldwide yet
(vi) the ability for cryptocurrency traders to remain anonymous makes the cryptocurrency sector a potential avenue for fraud, money laundering and other financial crimes, and for the buying and selling of illegal items.
Cryptocurrency companies or exchanges may also be disguised as Ponzi, pyramid or pyramid-type schemes. These schemes have been expressly outlawed in Trinidad and Tobago via an amendment to the Securities Act (which inserts Section 165A into said Act) to criminalise these ‘prohibited schemes’ and make it a criminal offence to establish, operate, advertise or participate in these prohibited schemes; or to invite persons to join these prohibited schemes.
Treating with virtual assets in the absence of specific legislation
Notwithstanding some of these cryptocurrency risks, persons are still buying and trading in this virtual asset, in their lifetime, and a measure of legal clarity and certainty as to how to deal with; or pass on this asset, in death, should be afforded to them. In the absence of specific virtual assets legislation, which contemplates how these unique assets should be treated in the course of estate planning or administration, it would be prudent for owners of virtual assets to create a virtual assets inventory to track virtual assets along with their access credentials.
This is very similar to the way assets may be captured in an Inventory to assist in Will preparation, and also how they are itemized in an Inventory as part of certain estate applications. Estate application Inventories are referred to in Rules 3 (1)(d) and 3 (2)(a) of the Non-Contentious Business Rules (Schedule I, Wills and Probate Act). And, if the virtual assets inventory is created and maintained electronically, it would be prudent to encrypt it.
As the creation and storage of virtual assets involves the use of physical assets, i.e. computers, laptops and related computer equipment and peripherals, how these physical assets are treated in a Will, especially if they are used in the storage of virtual assets, is critical. If the deceased’s intention is to gift the physical assets — the computer equipment, but not the virtual asset — the cryptocurrency and the cryptography key, this must be demarcated in any Will or Trust document.
For countries that allow the creation of Wills in different countries, consideration may be given to creating a Will in the overseas territory where the virtual assets company is incorporated. It may also be prudent to have a designated digital legal personal representative or trustee named in the Will whose purview will be limited to handling the virtual assets of the deceased as opposed to all the assets of the deceased.
This legal personal representative should be someone familiar and knowledgeable in this area and with virtual assets; as they would understand the complexities and nuances of these assets and the industry, they will require access to the encryption or cryptography key as part of the estate administration process and they will be best placed to access, convert the virtual asset to fiat currency (if required) and manage the virtual asset without losing significant amounts of money.
As Wills can potentially get into the hands of persons who are not a legal personal representative of the deceased, a beneficiary, or someone directly involved in the estate management or administration process, it may be prudent to exclude detailed provisions in a Will regarding virtual assets. At best, the inclusion of provisions for how cryptography keys etc will be transferred or revealed subject to the provisions of the terms of service agreement governing the virtual asset may be explored.
Conclusion
Without greater legislative and regulatory modernisation and clarity in the law in these areas, citizens (and residents) are presently left to consider the above-mentioned workarounds or to try to make best with our current legislation to provide for these assets in their estate planning. Should this legal and regulatory uncertainty continue to prevail, this may lead to challenges in the categorisation of these virtual assets and difficulties with general estate planning and administration later on.
This legal uncertainty may also have far-reaching consequences for beneficiaries and legal personal representatives alike including, but not limited to, any type of taxes that may potentially be applicable to these virtual assets. It is our hope that this article will inspire those in authority to give serious consideration to virtual assets in order to expeditiously bring the Trinidad and Tobago legislative regime into the 21st century.
This article is a joint effort between myself and Ms. Bellina Barrow Attorney-at-Law and Principal Attorney at Tenoreque Legal.
Disclaimer — This article is written for informational purposes only and it should not be construed as legal advice; or as giving rise to an attorney-client relationship. For legal advice, in these areas, please contact a qualified Attorney-at-Law.
