With the rise in the number of investors in South Africa holding cryptocurrencies as part of their investment portfolio, international family office Stonehage Fleming is calling for a more responsible approach to ensure an enduring financial and family legacy for future generations.
Stonehage Fleming says that alarmingly, in the majority of cases, investors have failed to give their beneficiaries a full picture of their crypto holdings, meaning that in the event of death, it would be very difficult for heirs to know how and where to access this wealth.
“As a young industry, with no steadfast rules or regulation, it is crucial for investors to become more responsible in their attitude towards cryptocurrency investing,” said Eran Brill, director in the Investment Management division at Stonehage Fleming in South Africa.
“The crypto market has experienced rapid, colossal growth. Although the initial hype may have eased slightly, there are many wealthy families who have not fully grasped that cryptocurrencies form part of their estate or how complicated it can be for beneficiaries to access this wealth in the event of death. Ongoing support and guidance from a trusted relationship manager is imperative to ensure that any wealth derived from alternative currencies stays alive after one’s demise.”
Investors need a storage execution strategy for account information as well as advice on the implications regarding the deceased estate, including access to accounts, distribution to beneficiaries, tax implications etc.
With every layer of protection put in by an investor, another layer of complexity at death is created. From hardware wallets to authenticator keys, simple smartphone login details to seed phrases, investors alone might struggle to store all of this information securely and effectively.
One way to keep this information safe is to hold partial passwords in various locations and/or jurisdictions through a trustworthy third party.
Strict access procedures need to be put in place. These include safeguarding part-passwords in offices and safes around the world, so that not one location ever holds all the keys and passwords. Certain scenarios should also be developed and executed whereby only specified people in selected locations have permissions to access information.
The limitations on taking money out of a country may seem irrelevant for many crypto investors, who simply drag coins from one e-wallet to another without physically crossing borders. However, Stonehage Fleming rebuffs this idea, saying that cryptocurrency should be treated like any other asset class, and as part of the estate.
In South Africa, exchange controls, estate duties and ownership all need to be considered and be discussed with someone who already has a good understanding of the general composition of one’s estate as a whole.
When focusing on intergenerational wealth preservation, risk is taken to generate returns. However, any risk should be broadly measurable and non-binary.
“Within our standard investment framework, the range of outcomes within cryptocurrencies is too wide and binary in nature for us to consider including a position in portfolios, even if the potential pay-off may be very significant,” said Brill.
“That said, as a responsible custodian of our clients’ estates, it is our fiduciary duty to manage all aspects of our client families’ wealth,” he said.
“Using all our practical experience, in combination with our technical and legal expertise, we help to establish a clear governance strategy wherever possible.”
“Investors who do not consider the intricacies of cryptocurrencies and the consequence of keeping crypto investing secret in life, should be prepared to wave goodbye to any wealth derived from such investments at death.”