Technology has become ever-present in our lives, and while it has simplified many things, it has also made some things more complicated, including estate planning. Now, when you consider your estate, you are not just leaving cash and tangible assets to your loved ones; you must plan for digital assets, too. That includes cryptocurrency, an asset which can be both very valuable and very difficult to understand.
What is Cryptocurrency?
Cryptocurrency is a type of digital currency that uses cryptography for security. Bitcoin and Ethereum are among the best known examples, but there are thousands of different cryptocurrencies available. While traditional currencies are issued and regulated by central banks, part of cryptocurrency’s appeal is that it is decentralized. It operates on a technology called blockchain, which is essentially a digital ledger that records all transactions across a network of computers for transparency and security purposes.
Bitcoin launched in 2009 with an initial value of just a few cents. Today, one Bitcoin is worth almost $90,000 U.S. dollars. Most cryptocurrencies haven’t seen such vast increases in value, but they may still be significant assets that you want your loved ones to inherit. Unfortunately, the same measures that purport to make cryptocurrency secure may make it more difficult for your personal representative, trustee, or heirs to access. Here’s what you need to know about cryptocurrency and your estate plan.
Steps to Estate Plan for Cryptocurrency
Your loved ones cannot inherit your cryptocurrency unless they know it exists. The first thing you must do in cryptocurrency estate planning is to make a detailed list of all your cryptocurrency holdings. The list should include:
The types and amounts of cryptocurrency you own
The wallet addresses for your cryptocurrency, typically a string of letters and numbers that you share with others to receive payments
The exchanges on which your cryptocurrency was purchased; an exchange is something like a stock exchange, but for digital assets. Exchanges may be centralized (overseen by an intermediary) or decentralized (allowing for peer-to-peer exchanges directly between user wallets).
It’s best to transfer your cryptocurrency to a wallet from an exchange as you purchase it; should you die with assets that remain on an exchange, the exchange may not have a mechanism to transfer the cryptocurrency to your representative or heirs.
Your list should also include information for your personal representative to access your private keys and recovery phrases (also known as seed phrases). Because these items control access to your cryptocurrency, they should be carefully protected during your life but available to your representative after your death. Many people choose to store this information in a secure password manager or a physical device called a hardware wallet. It is also wise to have a paper list as a backup, securely stored in a safe or safe deposit box.
When making your estate plan, reference your cryptocurrency in your will or trust. Otherwise, your loved ones may be unaware that you have these digital assets. Some planners believe that a trust offers more control and flexibility for estates that contain cryptocurrency. If possible, choose a trustee or personal representative who is familiar with cryptocurrency (or take the time to educate them before they need to put their knowledge into action).
Considerations When Estate Planning for Cryptocurrency
It’s always important to review and update your estate plan on a regular basis, and it’s particularly important when that plan contains digital assets like cryptocurrency. Your holdings may change, or new technologies may emerge; regular review will ensure that your estate plan remains relevant and can effectively transfer your cryptocurrency.
If you own cryptocurrency, it is also critical to have your estate plan prepared by a professional. Crypto laws vary from country to country, and legal rules about the inheritance of cryptocurrency and other digital assets may not be clear. While do-it-yourself estate planning is usually a bad idea, it may be especially so if you have crypto holdings. An experienced estate planning attorney can ensure that your estate plan is not only designed to handle your digital assets, but that it complies with the laws of your jurisdiction.
Depending on the value of your cryptocurrency, there could also be estate tax implications. Your estate plan should be prepared by an attorney who routinely works with large estates and estate tax planning.
Work with Experienced Cryptocurrency Estate Planning Attorneys
Due to the intangible, decentralized, and private nature of cryptocurrency, estate planning for this type of asset poses unique challenges The knowledgeable estate planning attorneys at Barron, Rosenberg, Mayoras & Mayoras regularly work with clients who are planning for sophisticated and complex assets, including cryptocurrency. Schedule a consultation today by calling (248) 213-9514 in Michigan or (941) 222-2199 in Florida to learn how we can assist you. You can also use our simple online contact form.