Hawaii's DCIL and Estate Planning

In light of the upcoming 60th Annual Hawaii Tax Institute, we are going to take a look at Hawaii’s unique approach to state licensing for digital asset companies. Hawaii’s Division of Financial Institutions as well as the Hawaii Technology Development Corporation launched the CIL (Digital Currency Innovation Lab) program in 2020 to pre-empt digital asset regulation in the state. While well-intentioned, the program’s 2-year period with uncertain renewal could pose a problem for fiduciaries who aren’t aware that the end of DCIL would lead to the closure of the grantor’s accounts. We will dive into the program’s operations and explain how fiduciaries and clients can stay up to date on account closures.

In 2020, Hawaii began the DCIL (Digital Currency Innovation Lab), a program designed to get regulators and digital asset companies to collaborate on best practices in the industry. This program allows the digital asset companies to avoid getting a Hawaii Money Transmitter License, though they still need to abide by its standards, in exchange for sharing data with the state and collaborating on regulatory efforts. The program was initially set to end on June 30, 2022, with a wind-down period ending on December 30, 2022. Following the wind-down period, all Hawaii accounts must be closed.

Luckily, the DCIL was renewed for another two-year period and is now set to end on June 30, 2024, with wind-down ending on December 30, 2024. It is unclear whether or not the DCIL will continue renewing. Hawaii might instead opt for a state-specific digital asset license, like New York's BitLicense, or decide to disallow crypto activity altogether. Regardless of their decision, the potential for sudden account closure requires proper planning.

Firstly, fiduciaries including Powers of Attorney, should be made aware of digital asset accounts participating in DCIL owned by the principal. You can find the participant list here. Having proper language in Power of Attorney, Trust, and even Will documents can alert a fiduciary to accounts held by the principal. If the accounts are being protected by Bequest, we will alert fiduciaries of account changes and facilitate the off-boarding process to help liquidate or distribute assets.

If you have clients based in Hawaii who hold digital assets, make sure they are aware of the DCIL program’s implications.