Cryptowills and cryptotrusts

03 February 2022

While the hype around memecoins continues and charts showing 10,000% profits go viral, there is scope for subtler disruption from crypto in the world of trusts and estates.

So-called “smart contracts” may have the potential to replace or complement conventional wills and trusts. At its heart, a smart contract is simply code which is held decentrally – i.e. hosted on computers worldwide that run a network like Ethereum. That code contains preset outcomes that are triggered by certain events.

For example, if three out of five national newspapers report my death, or my smartwatch cannot verify that I am still alive, the $10m embedded in the contract is automatically transferred to digital wallets held by my children. Or maybe I decide to write $10m into a smart contract which stipulates that $50,000 is to be paid to each of my children every 1 January until the funds are exhausted.

There are no doubt technical programming challenges in covering all contingencies in a smart contract. But there are also many questions that the law cannot yet answer. Does the smart contract that is triggered on my death meet the requirements for a will under the relevant law? Does it need to, or is it some form of lifetime trust? How would this be treated for inheritance tax purposes and how does the law deal with the fact that nobody really “owns” the assets that are subject to the contract until distribution is triggered? As lawyers, we are used to thinking about all contingencies, but what happens when the smart contract hits a circumstance that is not anticipated in the code?

The law will of course adapt to deal with the crypto revolution, and in many cases existing law already rises to the challenge. We will see courts applying 19th century cases from aristocratic trusts and industrialists’ estates to this new world. But it will be interesting to see how lawyers and crypto-devotees can work together to put this new technology into practice – and whether, in the end, we realise again the true value of a good trustee, who can adapt to unforeseen circumstances without the rigidity of computer code.