The innovative technology of smart contracts opens exciting possibilities. Speed, efficiency, and reduced costs are a few potential benefits that smart contracts bring to estate planning.
Do North Carolina residents still need the services of an estate planning attorney since smart contracts are gaining in popularity? Jackie Bedard, founding attorney of Carolina Family Estate Planning in Cary, North Carolina, explains why smart contracts are not a substitute for a professional estate plan.
What Are Smart Contracts?
Smart contracts are programs using blockchain technology. They can speed contract execution on a basic level by hard-coding the necessary steps to fulfill an agreement. Once the necessary conditions are in place, the program updates automatically, and the contract proceeds.
Here's how this works: Party X agrees to sell something to Party Y for $2,000. Both parties code their agreement onto the blockchain. When Party Y receives the goods, the smart contract automatically initiates payment to Party X.
Other than the fact that they do not require a middleman (like a lawyer), they are not so different from regular contracts, and purchases, real estate transactions, and retirement planning can benefit from this novel technology.
Are Smart Contracts Safe?
The blockchain is a public domain, which means anyone can view blockchain transactions. However, the identity and private information of the parties are fully encrypted. Only individuals who have a private digital key can access that information, making blockchain transactions highly secure. We discussed blockchain, bitcoin, and other cryptocurrencies in further detail in an article you can read here.
Of course, like all blockchain users, all smart contract parties must protect their private keys in a secure ledger and make sure they don’t lose access to the contract.
Smart Contracts and Real Estate Planning: Potential Benefits
When used correctly, smart contracts may enhance the efficiency of estate planning, minimize probate litigation, and make transactions more straightforward. In some cases, smart contracts could prevent losses of important documents like wills or trust paperwork.
Smart contracts may work to the advantage of beneficiaries. If the testator’s assets transfer automatically, probate may become unnecessary, saving time and costs. Heirs may avoid the trouble of locating estate plans, assets, and creditor documentation.
Additionally, smart contracts could eliminate potential disputes regarding a will or trust’s validity. Any contract amendments function as new blockchain blocks, always leaving a precise record of the initial document. An amendment would need to pass the verification process to become valid.
Since changes to smart contract information require blockchain verification, the technology reduces any doubts about an updated document’s accuracy.
The Limitations of Smart Contracts
With all their potential benefits, smart contracts do have limitations. While saving time and costs, their automation may narrow some of the flexibility that estate planning requires.
Some possible complications of using smart contracts may include:
- Premature will or trust execution due to incorrect verification of conditions
- Unauthorized law practice by coders without a law license and don’t understand the potential ramifications of things they are hard-coding
- Failure to address a testator’s change of circumstances or final wishes
- Lack of flexibility
The last point is perhaps the biggest weakness of smart contracts. Most estate plans are drafted to be ‘nimble’ in the face of changing circumstances. None of us knows the exact circumstances that will exist at the time of our death including when it will happen, who will survive us, the health of the survivors, the level of responsibility of the survivors, and other family dynamics. Thus, most estate plans include a variety of contingent instructions based upon potential outcomes. Overall, the irrevocable and inflexible nature of smart contracts makes them a poor substitute for a well thought out estate plan.
Will Smart Contracts Make Estate Lawyers Obsolete?
As the use of smart contracts becomes more widespread, should we expect people to stop searching for an estate planning lawyer? Most likely, the answer is no. Smart contracts don’t cancel the need for a professional estate plan, although they might become a valuable tool in the hands of estate lawyers. With all the advantages of smart contracts, estate planning includes details that only a professional estate attorney can resolve.
Since smart contracts are a new development, they will require their own legal regulations. Legislators and government agencies will need to address all the potential legal aspects of smart contracts, including specific protocols and limitations.
Why You Should Work With an Estate Attorney
Whether you opt to use smart contracts or not, you still need an experienced estate attorney to create a comprehensive and legally valid estate plan. Among other things, an estate attorney can help you:
- Correctly state beneficiary designations, including contingent beneficiaries
- Employ strategies to minimize estate or inheritance taxes
- Protect your retirement accounts
- Create legal documents relating to wills, trusts, and power of attorney
Our legal team at Carolina Family Estate Planning has helped many North Carolina clients achieve peace of mind by devising all-inclusive estate plans. We’re here to meet all your estate planning needs.
Carolina Family Estate Planning: Your Estate Planning Attorney in Cary, North Carolina
Although smart contracts are gaining popularity, they are still no substitute for having a professional estate plan. Founder and attorney Jackie Bedard and the experienced legal team at Carolina Family Estate Planning can help you create a comprehensive estate plan, from solid asset protection to long-term care planning. At Carolina Family Estate Planning, we help families build better lives by planning for a secure future via estate planning, asset protection, and long-term care planning. Call us today at 919-443-3035 to schedule a needs assessment call. We’re here to help.
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