The rise and fall of Bitcoin has brought cryptocurrency into the mainstream. Although Bitcoin is not worth $65,000 a share anymore, crypto will likely retain some monetary value in the future. Thinking about your investments in the long term includes considering what you want to happen to your assets after your death – and crypto is no exception.
Cryptocurrency (also known as crypto) is a type of digital currency. Regular currency is usually managed by a bank or other centralized authority. This is not true for crypto – where transactions are stored in a blockchain (a type of ledger) and are independently verified by a network of computers.
Since crypto assets are decentralized, it’s important to have specific provisions and instructions for them in your estate plan. Otherwise, it may be impossible for your beneficiaries to secure access to them when you pass away.
Since cryptocurrencies are decentralized and often hard to access, special considerations should be taken in the estate planning process in order to protect your assets. Think of cryptocurrency like diamonds – whoever has access to them has control over them, for better or worse. Conversely, if you die without giving someone access to your crypto private keys — the strings of randomly generated numbers and letters that serve as your crypto “passwords” — your crypto is likely gone forever, locked in a digital wallet that can’t be accessed.
The good news is that by planning ahead of time, you can anticipate these potential issues and address them before its too late. This should not be construed as legal advice, but here are some things to consider when estate planning with crypto in mind:
1 – Include Cryptocurrency in your Estate Plan
You may choose to keep your cryptocurrency a closely held secret, or you may have relatives that don’t understand the concept. If you don’t mention it in your estate planning documents, your next of kin may inadvertently throw away millions of dollars! Even if they do know what it is, assets that aren’t mentioned in the will are divided according to certain rules. If you want to devise your cryptocurrency in a manner different than the rest of your will, the best way to state your intentions is to list it in your will.
2 – But Don’t Include Too Much Information
Many estate planning documents are available to the public. This means that you shouldn’t write down all of the steps and passwords necessary in order to access your currency. Otherwise, someone could read your will on the internet and then take your cryptocurrency for themselves! Instead, describe how you want your cryptocurrency to be divided – and maybe include some information the necessary steps to retrieve your digital wealth.
3 – Make Sure Your Executor Can Preserve Your Digital Assets
In addition to naming beneficiaries for your crypto assets in your will, you should also name an executor: the person you appoint to administer your last will and testament. You could also name a separate digital executor and task them with protecting and preserving your digital assets and digital property. To make the process easier for everyone involved, consider nominating an executor or digital executor who is familiar with crypto.
4 – Document Where Your Crypto is Stored
The process for retrieving your cryptocurrency after death depends on how you store your currency. If your crypto is stored in a custodial account on a crypto exchange like Coinbase, your executor or beneficiaries can contact these exchanges directly to facilitate the transfer of your assets. The exchanges will probably need to provide your death certificate, proof of identification, your probate documents, and a letter signed by the executor with instructions on how to distribute the crypto.
If your crypto is stored offline in a cold wallet (a physical storage device that often looks like a USB drive), posthumous access will depend on how well you document your assets. You should document the location of your wallet (preferably in a fireproof safe). You should also document the public and private keys for your wallet, and put them in different, secure locations. Finally, provide any other information necessary to access your wallet (such as a passcode or a phrase). You can also provide some of this information to multiple people, such as a trusted friend or an attorney.