What are the Negatives of Investing in Cryptocurrency?

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What happens when all of a corpse's money is in his cold wallet?

When Matthew Mellon died suddenly in 2018, he was worth almost $200 million. He owned nine sports cars, a watch worth more than most Americans’ annual income, and left one daughter the priceless collection of Mellon family silver. However, he also left an estate mess for heirs, according to a recent article “How a cryptocurrency fortune crippled a deceased billionaire’s estate” from the daily dot.

Aside from the sports cars, watch, and the family silver, most of Mellon’s assets, estimated at more than $193 million, were in a cryptocurrency known as XRP, managed by Ripple. One court document noted that cryptocurrency made up 97% of the entire estate. Mellon’s estate disaster was unlike most when assets couldn’t be accounted for. Digital keys in a digital wallet secured his multi-million cryptocurrency assets. No one in the family knew where any of this was.

The online community and attorneys assumed the estate lost the XRP assets forever. However, there were a few twists to the story.

Matthew Mellon was a member of two powerful banking families, the Mellons, and the Drexels. He reportedly inherited $25 million as a young man and served as chair of the New York Republican Party Finance Committee, to which he’d made a six-figure donation. He was married to Tamara Mellon, the Jimmy Choo shoe brand founder. The marriage was one of two, both ending in divorce.

After testing the cryptocurrency concept with Bitcoin, his cryptocurrency investment began with a $2 million investment in XRP in late 2017. He became a global “ambassador” for XRP. According to Forbes, at one point, his investment was worth nearly $1 billion, but the rally ended, and the currency depreciated rapidly during 2018.

The family was doubtful about his involvement in XRP because Mellon struggled with substance abuse. The day he died of a heart attack was the day he was scheduled to check into a drug rehabilitation facility to treat an OxyContin addiction.

Left behind after his death were two ex-wives, three young children, and an outdated will. There was no mention of the estimated $193 million in XRP. He allegedly kept the keys to the cryptocurrency on devices under other people’s names in locations across the country. This secrecy led estate lawyers scrambling to gain control of his XRP, which fluctuated as much as 30% in the weeks following the death. Every day they could not sell, which increased the risk of not being able to liquidate his biggest asset.

Based on his relationship with Ripple, his attorneys were able to contact the right people at the company and gain access to his XRP. However, this does not happen for regular people, no matter how much the cryptocurrency is worth.

Gaining access to digital currency was just the start. Mellon had an agreement with Ripple that he could only sell off a small amount of XRP daily. The attorneys negotiated a slightly higher number but could not move fast enough to generate the cash needed to pay off the estate’s debts. The limit on sell-off made sense for Ripple—a big sell-off would have an extremely negative impact on XRP’s value, just as wide-scale dumping of stock would cut its value.

Mellon was also years behind on income tax returns, and the IRS wanted a piece of his multi-million dollar estate. In addition, two dozen entities, mostly private individuals, claimed he owed them money, ranging from a few hundred to nearly six million. There was a posthumous sexual harassment claim filed against him by a housekeeper. The estate paid $60 million in federal estate tax, and debts were settled in January 2021, almost three years after his death, because of the inability to sell the cryptocurrency.

Most people don’t lead such a complicated personal or financial life. However, in this case, an updated will or trust would have spared the family all the drama and stress of a high-stakes estate disaster. Proper estate planning could have protected the estate from a significant tax bite and kept Mellon’s family business private.

Reference: daily dot (Dec. 23, 2021) “How a cryptocurrency fortune crippled a deceased billionaire’s estate.”