Documentation key in preventing ‘disappearing crypto’, SMSFs told
Thorough documentation can help mitigate the risk of crypto assets going missing in situations like divorce, says a specialist lawyer.
Speaking in a recent webcast with Crypto Tax Calculator, Cadena Legal Harrison Dell explained that when it comes to documenting the ownership of crypto assets by an SMSF, at a minimum there needs to be trustee resolutions and trustee minute stating that a particular entity hosts the wallet and a particular person is controlling the private key.
“The trustee minutes should nominate which person is going to have the private key for safekeeping and how they're going to keep it and and I would strongly recommend the use of a ledger or some other cold wallet solution,” he stated.
SMSF trustees can go further than this with their documentation, however.
“You can do a deed or a deed poll which is a very solemn swearing of how certain things have happened and certain things are owned,” he stated.
By establishing a deed, this creates legal rights for the trust against the trustee in the case of assets being misappropriated, he explained.
“While the chance of that happening is relatively low seeing as SMSFs are closely held, I have heard of such cases in divorces where there’s crypto involved in the fund and it mysteriously disappears,” he warned.
“All sorts of things can happen so I do strongly recommended documenting it further.”
Crypto Tax Calculator chief executive Shane Harrison said there are also technology solutions such as Gnosis Safe that can help keep assets safe such as having a multi key unlock where there are multiple parties required to unlock the wallet in the first place.
“There are also managed wallet providers, at least in the US, so there are definitely options out there. As demand in the space grows, more innovative solutions are emerging so you don’t have a situation where somebody has just miraculously lost the private keys when they’re entering a divorce situation,” he said.
Mr Dell warned that these types of situations do happen, which can have “an egregious impact for the fund, as well as financially for the parties”.
“I’ve seen it go very badly in the family court where judges are not impressed. Stepping outside of superannuation, this goes to any sort of ownership of crypto as part of a divorce, where accountants are normally involved as well. It can disappear off the face of the earth quite quickly [with the person responsible] claiming it never existed — it's really common,” he warned.
“It's quite a problem and it's not going to be solved unless advisers are documenting what people are doing.”
In terms of documentation, Mr Dell said SMSFs can go as far as making a statutory declaration.
“However, this isn’t really necessary unless demanded by the ATO. I wouldn’t go beyond a deed or deed poll to acknowledge ownership of wallets and that includes any wallets that it goes through,” he stated.
01 September 2022