Cryptocurrency, like any other asset, can be passed to beneficiaries upon your death. However, there are a few key differences to know as you move through your estate planning.
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What is Cryptocurrency?
Cryptocurrency is a type of money in a digital form. However, it differs from traditional money in that it is decentralized and stored in blockchain technology instead of sitting in a bank. Because you can use cryptocurrency to buy and sell things, cryptocurrency is an asset.
Over the past few years, the world has seen an influx in cryptocurrency investment. Whether you are mining cryptocurrency yourself or simply own cryptocurrency, it is important to treat crypto, as a digital asset, differently than physical assets when deciding who to pass it on to after you die.
How Cryptocurrency is Different Than Traditional Assets
Digital currencies, such as Bitcoin, Ethereum, or Litecoin, are different than traditional assets held in a bank account because there is no physical record of the currency like there would be if a bank held the assets. With a traditional asset, you can go to your financial institution, request a beneficiary designation form, and fill it out. Upon your death, your executor will know who you have designated to receive the money. However, with cryptocurrency, there is no such beneficiary form.
The only way someone can access your digital assets is if they have access to your digital wallet (or cryptocurrency wallet). A digital wallet is where you store cryptocurrencies.
There are two types of digital wallets:
- A hot wallet connects to the internet. This is like carrying around all of your money with you, as hackers may be able to access your digital wallet while it is online,
- A cold wallet is offline. You store your cryptocurrency information in a thumb drive inaccessible to hackers.
Examples of digital wallets include PayPal, Zelle, Apple Pay, and Venmo. However, there are many others as well.
How To Effectively Pass Cryptocurrency Upon Death
If you have crypto assets you bought through a digital currency exchange such as Coinbase or Gemini, you will want to ensure that those assets pass to your loved ones and aren’t lost or forfeited.
List Your Assets and Beneficiaries in Your Will
First, you will need to list your crypto assets, where you have cryptocurrency accounts, and any digital wallets you are using in your last will and testament. If your executor does not know about your crypto assets, they can’t devise them according to your wishes.
Like traditional assets, digital assets must pass through probate (and yes, are still subject to federal and state estate tax). Because probate documents are a part of the public record, you mustn’t list any personal information, including passwords, passcodes, or PIN numbers in your will. This information and any private keys should be written down in a document and stored in a separate location with your other estate planning documents, such as a safe-deposit box or fire-proof safe.
You will want to make sure that the person you have named as your executor has the technical capabilities to access your crypto account and is someone you trust. Because crypto assets are digital, there is no way to prove that the person accessing a digital wallet is the true account holder. Unlike traditional investment accounts, you do not need to provide a death certificate to show that the true account holder has passed. Anyone with access to the digital wallet can take or spend all of the currency in the account.
Set up a Trust for Your Digital Assets
An alternative method is placing your digital assets in a trust. A trust keeps your cryptocurrency assets private. Assets in a trust are not subject to probate and add an extra layer of security to your assets. Additionally, if you don’t have anyone in your life that you believe can properly manage your crypto assets, you can name a bank, accountant, or even an attorney to act as your trustee and manage your assets effectively.
What If I Don’t Know Anyone Capable of Handling Crypto Assets?
If your executor, family members, and loved ones have no idea what terms like “cryptocurrency exchange,” “blockchain,” or “private keys” mean, there is another option.
You can instruct your executor to hire an attorney to assist in selling your cryptocurrency and can distribute the funds from the sale to the beneficiaries in your will.
Creating A Will to Handle Cryptocurrency
Creating an estate plan may seem complicated depending on what kind of assets you have. However, you can use Findlaw’s Do-It-Yourself Estate Planning Documents to make sure you have all of your assets correctly listed. If you have additional questions, contact a local estate planning attorney for legal advice about leaving cryptocurrency to your beneficiaries.