As the mainstream adoption of cryptocurrency continues to proliferate, it raises crucial questions regarding how these digital assets will be handled from an estate planning perspective. For instance, how can you safely and effectively ensure your heirs can inherit virtual currencies like Bitcoin after you pass on? 

After all, crypto assets, by design, can only be accessed via a private key – there’s no personal identification data associated with the digital money. So, how do you protect your assets and incorporate them into a well-crafted estate plan?

Estate Planning & Cryptocurrency

With traditional assets, such as investment accounts or real estate, there is a corresponding legal document that identifies the owner of those assets. Cryptocurrency, on the other hand, uses a decentralized network where users can conduct and govern any financial transactions that take place within the system. 

Cryptocurrencies are typically stored by an individual in a digital wallet. This “wallet” is given a blockchain address that can be utilized to send and receive virtual assets. To keep crypto assets secure, a wallet requires a private key (like a passcode) that must be used prior to performing any type of digital transaction. As a result, there is no personal identifying data or information correlated with crypto assets – just the private keys. 

The anonymous nature of virtual currencies like Bitcoin presents new and unique challenges in the estate planning arena. Why? Because without any type of corresponding personal information associated with a crypto wallet, assets can be lost forever if a person fails to communicate their existence before they pass away. 

Protecting Your Crypto Assets

A last will and testament is effective for designating a child’s guardian or specifying who will receive a person’s valuable artwork, but the document becomes public after an individual dies. And because the safe and secure transfer of cryptocurrency is crucial, typical estate planning documents, such as a will, won’t ensure your private key and digital assets fall into the right hands. 

As mentioned, family or loved ones must know about the existence of your crypto assets, where they can be found, and what to do with them when you pass away. Because the reality is: the loss of your digital assets can potentially be detrimental to your family’s legacy. After all, if you work tirelessly to save hundreds of thousands of dollars, would you simply withdraw the money from a savings account and light it on fire? Poof. It would be as if it never existed and your intended beneficiaries wouldn’t be the wiser once you passed on. 

The moral of the story is, to ensure crypto assets remain safe, it’s imperative to execute a smart estate planning strategy. As U.S. News shares, for anyone who has “crypto assets on an exchange (Coinbase, Kraken, Binance, and other exchange accounts), the focus is on making sure that they leave a trail of breadcrumbs for their fiduciary to be able to find and access the account. They can list the crypto asset on the schedule of trust assets, and make absolutely sure the successor trustee has the login protocols to access the client’s account on the exchange.”

Creating an Estate Plan for Your Bitcoin

By partnering with an experienced estate planning attorney, you’ll have an expert by your side who can help create an estate plan and protect your crypto assets using one or more of the following solutions. 

  • Establish a trust and transfer ownership of digital assets to the trust. Individuals can then designate a trustee to assume responsibility for managing those assets. 
  • Share your private keys (each account/address will have its own unique key) or seed phrase (an access key to your entire wallet, which can have multiple addresses associated with it) with a trusted friend or family member. You can also opt to splinter this information among several people to ensure no single individual has complete control over your crypto assets.
  • Put your digital assets into a custodial account, like a hardware wallet. Similarly, instead of a self-sovereign identity wallet, you could enable cascading multi-signature ( or “multi-sig”) wallets to distribute control across multiple people. 

An estate planning expert will also help you understand – and plan for – estate and federal tax implications for those inheriting the assets. Creating an estate plan for your cryptocurrency should also include your desired intentions for what beneficiaries should do with the assets once ownership is transferred.

Given the new and unique nature of cryptocurrency, it’s essential to carefully consider your options and ensure proper procedures are in place to transfer digital assets upon your passing. With so many considerations to heed, you’ll want to develop a plan that best fits your goals and needs. To learn more about how Smith Barid’s estate lawyers can help you with your cryptocurrency estate plan, contact us today.