Cryptocurrency continues to grow in popularity, but did you know many people who invest in cryptocurrency fail to plan for those assets in their estate plan? If you own cryptocurrency like Bitcoin, Ether, or other types of cryptocurrency, you may face unique risks if you do not plan for those assets like you would your home or bank accounts.
Read on to learn more about cryptocurrency and estate planning considerations.
What Happens to Cryptocurrency in My Estate If No One Has the Keys?
Cryptocurrency revolutionized how many people view investments, privacy, and financial freedom. For the first time, individuals could own and trade assets without needing banks or other centralized financial institutions to facilitate transactions. That freedom is attractive. But it also presents one of the most significant estate-planning issues for cryptocurrency.
A traditional bank account is different from cryptocurrency. You cannot walk into a bank with a death certificate or court order and gain immediate access to someone’s cryptocurrency account.
Instead, cryptocurrency is generally accessible only to those who hold the private keys or login credentials. If no one else knows the crypto wallet password, recovery phrase, or other login information when the owner dies, that information could be lost forever.
As cryptocurrency becomes more prevalent, more families are running into this issue. Family members can legally inherit cryptocurrency but have no way to access it without the proper login credentials.
If you own cryptocurrency, make sure your estate plan not only mentions your digital assets but provides clear instructions on how to access them. Also, make sure your heirs know where to find those assets when the time comes.
Why Cryptocurrency Is Different From Traditional Assets
Typical bank accounts, retirement accounts, and even life insurance policies have recovery or legacy contacts. After someone dies, executors and beneficiaries can contact the institution directly to move assets to a new account.
Because cryptocurrency does not have a central issuing authority, digital wallets work differently.
Ownership of cryptocurrency is directly tied to access credentials such as private keys.
Cryptocurrency can be held in two ways:
- Cryptocurrency exchange accounts
- Private cryptocurrency wallets
When cryptocurrency is stored on an exchange, the exchange may have an account recovery process. However, families may still experience delays and legal hurdles regarding recovering those assets.
Private wallets present a bigger challenge. Cryptocurrency wallets are typically secured by either a private key or a recovery phrase composed of numerous random words. If the owner forgets these credentials or refuses to share them, that cryptocurrency could be impossible to recover.
There is no “forgot your password” option to recover self-custodied cryptocurrency like you might with online banking.
You could be deceased, yet your crypto wallets still remain inaccessible to your loved ones.
What Happens if Nobody Has the Private Keys?
If no one else knows the private keys or recovery phrase for cryptocurrency wallets, those assets could be lost forever. Unfortunately, courts, attorneys, and crypto companies may be unable to recover these assets.
It’s a cold, hard reality of cryptocurrency ownership. The crypto account owner is typically in complete control of their assets. There may be no way to recover those assets without the proper login credentials.
Already, there are many examples of individuals dying and taking millions of dollars in crypto with them. Some estimates say there is already billions of dollars worth of cryptocurrency lost forever because the owners forget their keys or pass away without telling anyone.
This can leave families in terrible situations. They may know their loved ones owned cryptocurrency. Maybe they can even find records of the accounts online. However, without the proper credentials, they cannot actually do anything with those assets.
Probate courts cannot access crypto wallets that require private keys to unlock.
That is why many estate planning attorneys are now talking to clients about cryptocurrency and their digital assets.
Can Cryptocurrency Be Included in an Estate Plan?
Yes! Not only should cryptocurrency be included in your estate plan, but you should specifically address how you want those assets handled.
Cryptocurrency and other digital assets are becoming increasingly common, so Florida estate law includes provisions for dealing with them.
Under Florida law, digital assets are addressed under the Florida Fiduciary Access to Digital Assets Act. This law may allow an executor, trustee, or power-of-attorney agent to access digital assets, such as cryptocurrency, if granted permission by the document creator. (Mark Mastrarrigo P.A.)
However, just because an executor has legal authority to access someone’s digital assets does not mean they have the passwords and credentials needed to actually retrieve those assets.
This is why your estate plan should do more than just list your cryptocurrency holdings.
Ideally, your estate plan should include:
- A list of your digital assets
- Detailed instructions for how to access those assets
- Safe methods of storing passwords and credentials
- Proper authorization for your executor or trustee to access those assets
- Instructions regarding how those assets should be held in trust
- Updated lists of your cryptocurrency exchanges and digital accounts
Failing to plan for your cryptocurrency could leave your loved ones with assets they cannot access or use.
Why You Should Never Put Private Keys Directly Into a Will
A common mistake we see with cryptocurrency and estate planning is people assuming they should write their private keys or passwords directly into their Will.
In most situations, this is a bad idea.
Anyone can access your Will after you pass away since it becomes a public document during probate. Including private keys and wallet credentials in your Will could cause significant security risks for you and your heirs.
Estate planning attorneys have seen this issue before and typically recommend placing instructions for accessing digital assets elsewhere. (Mark Mastrarrigo P.A.)
For instance, you could:
- Store your crypto recovery phrases in a safe
- Use an encrypted digital password manager
- Leave written instructions on where to find your login credentials
- Work with a trustee to ensure someone else knows where your information is stored
The key is to ensure your loved ones can access your cryptocurrency after you pass away without exposing that information unnecessarily during your lifetime.
Balancing privacy, security, and accessibility is a challenge with cryptocurrency. But experienced estate planning attorneys have helped families navigate this before.
What Role Does a Trust Play With Cryptocurrency?
Trusts can be helpful for some people looking to manage their cryptocurrency through estate planning. Certain individuals may choose to place cryptocurrency into a revocable living trust.
Trusts avoid probate and allow appointed trustees to manage your digital assets. (Joseph C. Kempe)
But a trust still does not grant anyone magic abilities to recover missing passwords and crypto keys.
Communication and documentation are critical. Just because you say you own cryptocurrency in your trust does not mean your trustee knows where you stored it years ago.
Anyone creating an estate plan with cryptocurrency should review their plan annually. Cryptocurrency wallets, exchanges, and storage methods can change over time. Your cryptocurrency estate plan from three years ago may not adequately cover how you actually store those assets today.
Make sure your estate plan consistently aligns with how you currently access your cryptocurrency.
What Other Digital Assets Should Be Included in Estate Planning?
Cryptocurrency is not the only type of digital asset you should address with your estate plan. Under Florida law, any digital asset you own should be included in your estate plan.
Examples of digital assets include:
- Online banking accounts
- PayPal or Venmo accounts
- NFT’s
- Investment accounts
- Social media accounts
- Cloud storage accounts
- Digital businesses
- Domain names
- Email accounts
- Digital intellectual property
Many people do not realize how many financial accounts and valuable property they have online. Do not forget to include digital assets in your estate plan.
Why Cryptocurrency Estate Planning Matters More Than Ever
Despite cryptocurrency’s growing popularity, many estate plans leave digital assets, such as cryptocurrency, unaddressed. That oversight could cost your loved ones if you own cryptocurrency.
While some people spend decades carefully investing in homes, IRAs, and 401(k) plans, it can take others a few years to accumulate hundreds of thousands (if not millions) of dollars in cryptocurrency. Then when that person dies without telling anyone their crypto login information, it could be lost forever.
Cryptocurrency estate planning does more than just distribute those assets. Ensuring your heirs know where your cryptocurrency is and how to access it is crucial.
If you do not plan for your cryptocurrency, you could effectively be giving away thousands or millions of dollars to your crypto exchange.
Speak with an experienced estate planning attorney to ensure your estate plan covers cryptocurrency and other digital assets. Planning now could prevent your family from dealing with unnecessary confusion and financial loss later.
Contact Patton Law Group to ensure your estate plan is ready for digital assets.
