Blockchain is an incredible technology with seemingly endless ways to change and improve our world. It promises to remove the need for middlemen and trusted intermediaries thereby disrupting well-established and time-honored industries – relevant to this post, recent startups claim to have found answers to the riddle of estate planning, to the complexities of estate administration, and to eliminate will contests and trust contests.
“With Blockchain, the practical consequence […is…] for the first time, a way for one Internet user to transfer a unique piece of property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” —Marc Andreessen, Founder of Netscape.
For anyone interested, in his book “Blockchain Revolution: How the Technology Behind Bitcoin and Other Cryptocurrencies is Changing the World,” (Penguin 2016), author Don Tapscott examines the emerging technology in a simple to read, well-written manner. “If business, government, and civil society innovators get this right,” says Tapscott, “we will move from an Internet driven primarily by the failing costs of search, coordination, data collection, and decision making . . . to one driven by the falling costs of bargaining, policing, and enforcing social and commercial agreements . . . .”
One recent estate planning blockchain based startup asserts that it will provide a “distributed and decentralized blockchain solution for estate planning, management, and distribution.” This would be a remarkable feat, and one day, when current realities are changed (such as the day when a person holds most of his or her assets in a blockchain based format), this goal may very well be achieved. The significance of simplifying estate planning would be welcomed in an age where, according to Goldman Sachs and many other prognosticators, estate and trust beneficiaries will see an estimated $30,000,000,000,000 (yes, that’s $30 trillion) wealth transfer in the coming decades. However, there are numerous practical difficulties with the proposed e-solutions because of current, real-world scenarios.
Below are a few of the claims made and our opinion about the accuracy or inaccuracy of the claim according to current Texas probate practice:
Claim #1: “Present day traditional wills and estate trusts are ripe for potential corruption, manipulation and misinterpretation.”
Reality: This can, of course, occur from time to time. However, by and large, property passing under a will makes the transition smoothly, quickly, and inexpensively. Of course, there is always the possibility of manipulation and misinterpretation that can lead to a will contest or trust contest.
Claim #2: “Ownership of critical decisions can be turned over from human to machine to eliminate biases, uncertainty, and corruption.”
Reality: Hmmmm, what critical decisions exactly are these? In this author’s opinion the critical decisions in most estate plans are “who” and “what.” Those decisions cannot be delegated to a machine. Granted, the startups may be referring here to the timing of the transfers. And yes, that certainly seems capable of automation. But what if the grantor (the person doing the giving) has already lost the capacity to make a will or trust decision? Does that mean that the electronic transfer is not subject to attack? Does that mean that the recipient won’t be sued for return of a fraudulent or invalid transfer? Of course not! So, the will contest and trust contest conundrum will not disappear anytime soon, at least not with existing and publicly proposed e-solutions.
Claim #3: “Automatic detection of life and continuous verification. Transfers automatic when no life is verified. Biometric, digital proof of life, and behavioral analysis to verify.”
Reality: The proposal of these companies is that the machines would monitor your logins, online activity, and even your real time health via an Apple Watch or some other type of biometric device. This certainly seems doable. Isn’t that scary? Just don’t plan to go off the grid for any extended period of time lest your assets be transferred as a result of machines deciding that you’ve passed on. Note: the startups propose a claw back period for the transfers if an erroneous transfer somehow occurs.
Claim #4: Will and trust contests are not an issue.
Reality: There are many scenarios where this claim could be untrue. For example, what do you think would happen under the following theoretical scenario? 87 year-old Mr. Will Never Sue has been in Alzheimer’s cognitive decline for 6 years and no longer has testamentary or contractual capacity. Guardianship has been recommended by physicians. Mr. Sue’s assets are realty (real estate), personalty (legalese for personal property), and what we’ll call “blockerty” (we propose this new word to define an asset or group of assets whose title or ownership is based entirely in the blockchain). Mr. Sue conducted his first estate planning via blockchain smart contracts for his blockerty, realty and personalty 10 years prior to any known hint of dementia. In the first estate plan, Mr. Sue’s biological children take equally. Since then, however, Mr. Sue met a beautiful seductress and decided to marry her. After becoming incapacitated, Mr. Sue becomes convinced to leave his estate to his new wife. There is a login to his account and the new Mrs. Sue will now receive everything when Mr. Sue passes on. What would be the legal analysis after his death?
If Mr. Sue was incapacitated at or before the time that he logged in to amend his will with the new Mrs. Sue, would the fact that he is acting online have any impact on the analysis that he lacks the requisite mental capacity to execute a will? (no, if he is incapacitated he cannot make a will or change his estate planning).
So, if Mrs. Sue received assets under a will made when Mr. Sue lacked capacity, the heirs under the first will would still very likely have a claim to invalidate the subsequent will. Thus, under currently proposed blockchain estate planning systems, the claims of incontestability appear to be a stretch.
Let’s assume that Mr. Sue did not have Alzheimer’s and that he did have capacity, and also that he was legally married to his sweetheart. Let’s assume that Mr. Sue left his original estate planning in place, which leaves everything to his children. Let’s also assume all of Mr. Sue’s assets were blockerty. If all of Mr. Sue’s assets transferred to the children automatically, how would Mrs. Sue obtain the benefits (such as, for example, a family allowance in lieu of exempt property; see Texas Estates Code § 353.053) to which she may be statutorily or legally entitled?
Conclusion. Automation, security, and confidence in protecting one’s assets after death is an important part of life, since we do not endeavor to incent the elderly to prematurely give away property before death and, therefore, possibly become indigent or dependent on others. So, the idea of locking in testamentary gifts via blockchain technology is noble but still most likely in need of further societal and statutory change before becoming a reality.