Digital assets have gone from a niche investment to a mainstream topic in a relatively short period of time. As investor interest has grown, however, regulators and financial institutions have failed to keep pace. The Digital Asset Market CLARITY Act (the “CLARITY Act”) is proposed federal legislation designed to establish clearer rules for the digital asset industry. If enacted, the CLARITY Act could reduce regulatory uncertainty and foster broader participation in the digital asset industry by wealth managers, custodians, and other financial institutions.
What Are Digital Assets?
Digital assets are assets that exist electronically and are generally recorded, transferred, or stored using blockchain technology. The most common examples are cryptocurrencies, such as Bitcoin and Ethereum, although the term also includes stablecoins and other blockchain-based assets. While digital assets were once considered a specialized investment, they are increasingly being discussed alongside more traditional asset classes such as stocks, bonds, and real estate.
How Do Things Work Today?
One of the primary challenges facing the digital asset industry is regulatory uncertainty. For years, regulators have struggled to determine how certain digital assets should be classified and regulated. As a result, many financial institutions have taken a cautious approach to offering digital asset services or incorporating digital assets into client portfolios. Today, many investors continue to hold digital assets through cryptocurrency exchanges or personal digital wallets rather than through traditional wealth management platforms.
What Is the CLARITY Act?
The CLARITY Act is proposed federal legislation designed to create a more comprehensive framework for regulating digital assets in the United States. In general, the Act seeks to establish a regulatory framework for digital asset markets, including clarifying the respective regulatory responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), particularly with respect to whether certain digital assets are regulated as securities or digital commodities.
The proposed legislation also includes various disclosure, registration, and customer-protection requirements for market participants. Supporters believe that clearer regulations will provide greater certainty for market participants and spur additional investment and innovation. The purpose of the Act is not to endorse digital assets as investments, but rather to establish clearer rules regarding how they are regulated.
What Could Happen If the CLARITY Act Passes?
If enacted, the CLARITY Act could result in broader participation by financial institutions in the digital asset market. Wealth managers, custodians, and other financial service providers may become more comfortable offering digital asset-related services within a clearer regulatory framework. Over time, digital assets may become more integrated into traditional investment platforms, portfolio reporting systems, and advisory services. However, the Act is unlikely to eliminate many of the practical considerations associated with digital asset ownership, including the importance of maintaining accurate records, asset volatility, and preserving access to digital accounts and wallets.
What Could the CLARITY Act Mean for Estate Planning?
One of the lesser-discussed implications of the CLARITY Act is its potential impact on estate planning. Today, digital assets often present unique challenges when an owner becomes incapacitated or passes away. Family members and fiduciaries may have difficulty locating digital assets, obtaining access to digital wallets, and/or determining the value of holdings. In some cases, assets can become permanently inaccessible if private keys, passwords, or account information have not been properly documented.
Another challenge is that many digital asset holdings, particularly those maintained through self-custody arrangements, are not currently held in a manner that allows for traditional transfer-on-death (TOD) or beneficiary designations. As a result, these assets often require additional planning and documentation to ensure they pass outside of probate, if possible, and according to the owner’s wishes. Investors who assume their digital assets will transfer as seamlessly as a traditional brokerage account may be surprised to discover that the process can be considerably more complex.
By encouraging greater participation from regulated custodians, wealth managers, and other financial institutions, the CLARITY Act could contribute to a more standardized approach to holding, reporting, and administering digital assets. Over time, increased institutional involvement may lead to broader availability of beneficiary designation features, TOD registrations, or other estate-transfer mechanisms that investors commonly use with traditional financial accounts. While the Act itself does not establish TOD rules for digital assets, a more developed regulatory framework could lead service providers to offer more estate-planning-friendly solutions.
Conclusion
If passed, the CLARITY Act will likely be an important step toward bringing greater certainty to the digital asset marketplace. However, regardless of future regulatory developments, digital asset owners should take steps now to ensure these assets are properly integrated into their estate planning documents and overall wealth transfer strategy.
If you own cryptocurrency or other digital assets, SKO can help you evaluate how those assets fit within your estate plan and identify strategies to address access, administration, and transfer concerns. Proper planning today can help reduce complications for your loved ones and fiduciaries in the future.
This material has been prepared for informational purposes only, and it is not intended to provide, and should not be relied on for tax, legal, accounting, or investment advice. Please contact SKO or your other tax, legal, or investment advisor prior to engaging in any planning or transaction.
** The author gratefully acknowledges Summer Associate Peyton McWilliams for her research and drafting assistance in the preparation of this article.
