How Escheatment Law Applies to Crypto & Why You Should Care
As the blockchain space continues to grow and flourish, cryptocurrencies and other digital assets are drawing more attention from government agencies and financial authorities.
While traditional investments have long been subject to escheatment processes (abandoned assets), these legal proceedings are now being expanded to cover cryptocurrencies and other digital assets as well. To keep your digital assets in your control, it is essential to know how to protect them long-term.
Today, we’ll discuss what escheatment law is and how it applies to digital assets. Keep reading to learn about recent regulations and why you should treat your digital assets the same as you would traditional investment accounts.
Plus, stay tuned for a sneak peek of how Webacy plans to address these concerns around abandoned assets.
What is Escheatment Law & Does it Apply to Digital Assets?
Escheatment is a legal process in the United States in which unclaimed and abandoned assets are turned over to a state or government authority. While some escheatment laws do exist in other countries, the U.S. is currently the biggest regulator when it comes to unclaimed property and assets. The amount of time an asset must remain inaccessible or untouched to be considered abandoned varies from state to state.
Once an asset is considered abandoned, the average amount of time the government can hold the asset without the original owner losing ownership is five years, known as the dormancy period. While these assets are generally held by government agencies in escheated investment accounts for limited periods of time, they are eventually liquidated if left unclaimed.
Before a government agency or financial agency can begin the escheatment process, there must be a diligent effort made to first locate and contact the account owner. To claim escheated accounts, the process varies from state to state — most require you to file a claim request directly with your state.
While escheatment has long existed for traditional assets like property, bank accounts, and traditional investment accounts, the water is a bit murkier when it comes to digital assets.
According to a 2022 article from Bloomberg Tax:
“— an increasing number of state agencies and third-party auditors have indicated that cryptocurrency is escheatable as an administrative matter, notwithstanding the lack of a specific law in the state’s unclaimed property code or duly promulgated regulation.”
Cryptocurrencies have become the biggest subject of new escheatment law discussions. Other newer digital assets — like NFTs, for example — still remain to be widely regulated, but are not too far behind.
New Asset Regulations to Be Aware Of
In 2016, the Uniform Law Commission publicized the Revised Uniform Unclaimed Property Act (RUUPA) which, among other things, included “virtual currency” as a type of property that is subject to escheatment laws.
Despite including virtual currency, which covers cryptocurrencies, within RUUPA, it does not definitively state what the applicable protocol is for determining the dormancy period for crypto. Additionally, RUUPA does not cover how this type of asset can be remitted to states.
According to an April 2022 report from Bloomberg Law, twelve U.S. states have currently adopted all or a substantial portion of RUUPA, though the standards for escheatment of virtual currency are not widely standardized as of now.
For instance, in Illinois, virtual currency has been given a dormancy period of five years before it can be liquidated, reported, and remitted to the state. Meanwhile, in other states such as Maine, an approach to handling the escheatment of cryptocurrency has yet to be addressed.
Although we are not your attorney, we recommend, to be safe, to expect that proposed state standards may soon become adopted across more states, and that your assets should be protected assuming those standards.
New escheatment regulations are not the only changes making waves in the crypto space — the Internal Revenue Service is now also taking a closer look at how cryptocurrencies and other digital assets should be taxed as well.
In a report from Crypto Briefing, it is revealed that the IRS has expanded its crypto tax reporting requirements to classify crypto, NFTs, and stablecoins within the category of digital assets, which are subject to capital gains taxes (or capital loss write-offs).
Why Cryptocurrencies & NFTs Should be Treated as Valuable Assets
Escheatment laws play a key role in maintaining the flow of the economy.
While many believe escheatment laws to be equivalent to government encroachment, they can ultimately help to ensure that abandoned funds and assets are put to use and back in the economy rather than left to gather dust in forgotten and unclaimed accounts. This leaves extra uncertain supply and affects overall markets.
However, the cryptocurrency market and the larger blockchain industry have long thought themselves to be beyond the grips of government control. With more regulations being published that address the taxation, escheatment, and other financial regulation of cryptocurrency, the tide is now turning.
Digital assets are becoming increasingly valuable, not just in terms of their direct value but also in how they are employed in society as a whole. Major companies and corporations, such as Microsoft and Whole Foods, have begun accepting Bitcoin as a payment method. Meanwhile, big-name brands like Twitter and Adidas have even released their own NFTs.
Overall, digital assets are gaining traction with the general public, making it crucial for investors holding these assets to know how to keep them safe from escheatment.
Maintaining access to your digital assets is critically important, for more reasons than one; you are able to prove consistent ownership which will allow you to pass escheatment tests.
On the one hand, blockchain wallets are highly secure and require complex keys known only by the wallet owner to access. If you lose access to these keys, you lose access to your assets, with little to no means of getting them back without the proper protections in place.
On the other hand, government agencies and financial institutions are seeking ways to better monitor digital assets and subject them to escheatment laws. With the complexity involved in blockchain technology, this could — in the worst-case scenario — lead to investors losing access to their accounts and then having their assets turned over to state authorities after the dormancy period passes.
Final Thoughts: Utilize Webacy to Protect Access to Your Assets
To ensure you always maintain access and claim over your cryptocurrencies and digital assets, it is essential to use tools like Webacy to guarantee their safety.
At Webacy, we provide a backup wallet tool that allows you to transfer your assets from one wallet to another in the event that you lose access to the original. Plus, we offer crypto and blockchain will-writing tools that allow you to name your beneficiaries and determine the fate of your assets after your death.
Soon, Webacy will also offer a new tool that allows you to track your assets across multiple assets and move assets on a time trigger to avoid losing access or falling out of a dormancy period. Get access to Webacy today via our official Grimmies access pass.
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