Billions of dollars are being poured into cryptocurrency every year, an economic development that may have far-reaching implications. Many believe it is the dawn of a new era of decentralized finance, a world without banks or middlemen. Whether that’s true remains to be seen, but one of the more practical concerns for cryptocurrency is how to ensure it is transferred to the right person after you die, i.e., how to make it part of your estate planning.
The very aspects of cryptocurrency that attract many of its proponents—anonymity and decentralization—create unique concerns that must be specifically addressed in an estate plan.
Make Sure Someone Knows About It!
The biggest problem with cryptocurrency and estate planning is that very often, no one else is aware of its existence. There are no bank statements or W-2s; in some ways, the money invested in cryptocurrency has dropped off the grid, and it can easily be lost there if no one knows to go looking for it.
Therefore, the first step to including cryptocurrency in your estate plan is to list it as an asset. You can leave it to your beneficiaries in a traditional will, though some believe this is less secure because the will becomes public when it goes to probate.
Another popular option is to transfer your cryptocurrency to a living trust. A will helps ensure the cryptocurrency doesn’t get lost and has the added benefits of being more private and bypassing probate.
Passing Along Your Credentials
Cryptocurrency funds are essentially anonymous, accessible to anyone who has the private key or seed phrase needed to log in to the account or digital wallet. Because there is no centralized institution holding the investment, there is no safeguard or backup plan to retrieve funds if the password is lost. In a well-publicized case, one Bitcoin owner misplaced the password to his digital wallet containing hundreds of millions of dollars worth of cryptocurrency, losing access to that fortune forever.
Transferring your key or seed phrase as part of your estate is an essential part of passing along your cryptocurrency assets, but the vulnerability to theft also makes this a little tricky. Here are a few options for keeping track of these passwords and making sure they are available after your death.
Share Your Passwords with Someone You Trust – This is the simplest solution, assuming you can trust someone with access to your funds. You may also share parts of the password with multiple people to keep one person from having access.
Safe Deposit Box – An old-school approach to a 21st-century problem. Simply create a hard copy of the passwords and store them in a safe deposit box which can be accessed in the event of your death. Some may choose to divide the password into two or more pieces and store them in multiple locations.
A Dead-Man’s Switch App – Cryptocurrency owners can configure a system where they are required to log in regularly to confirm they are still alive. If they fail to do so, a predetermined process will transfer ownership to someone else.
Create a Living Trust – If you put your cryptocurrency into a trust, not only does it simplify probate as mentioned above, a trustee can access and disburse funds according to the terms of the trust.
Get Help From an Attorney
Cryptocurrency can form a significant part of the legacy you leave behind, but you must take proactive steps to ensure it is passed on. Our experienced estate planning attorneys can help you find a secure solution that meets your needs. Contact us today for a consultation.