Cryptocurrency has become more mainstream every year, with people dabbling in various digital currencies as they learn more about it. As such, it is becoming more and more likely that cryptocurrencies will be a part of estate planning.
Even traditional investment portfolios can cause confusion in estate planning, but cryptocurrencies can create even more confusion. Transferring crypto assets from one person to another isn't nearly as simple as doing so for stock certificates, for instance. In fact, even figuring out how to access these digital currencies can be complicated at times.
That's why if you own cryptocurrency, you need to speak with an experienced estate planning lawyer who can walk you through all the ins and outs of how to work it into your overall estate plan.
Here are some things to keep in mind if you're building an estate plan that includes cryptocurrency assets.
Provide an Easy Way to Access the Assets
One of the most attractive aspects of cryptocurrency to many people is the fact that it provides anonymity in ownership.
Those who own crypto typically store their access codes and digital keys -- what are necessary to actually access the asset - in fickle ways. This is a good idea, of course, because these pieces of information unlock full access to the digital wallets that store the cryptocurrency.
If one is able to access this wallet, they are essentially able to do whatever they want with it.
While this is an attractive part of cryptocurrency, it's also a downside when it comes to estate planning. Digital wallets can't be easily transferred upon someone's death, unless they have access to these pieces of information.
Official beneficiaries can't be listed on digital wallets, so the entire account can't just be transferred to another person.
That's why it's essential that the access codes and digital keys are stored in a secure place with clearly-written instructions on how people can access them should they pass away. This information can be written out as part of the estate plan and will, with the location of where all the information can be found.
The Importance of Access Keys
It's worth talking further about just how important these access keys are to cryptocurrency assets.
Unlike a bank account or stock, owners of cryptocurrency don't associate their name and other identifiable information such as their Social Security number with the wallet that stores it. There also aren't any deed, account statement or title certificate that proves the asset is yours.
This design of cryptocurrency is what prevents typical estate plans from being effective at transferring assets from one person to another.
What's more, cryptocurrency can be stored on any digital device, such as an external hard drive, smartphone or thumb drive. In other words, it can be hard for people to know what they have if there aren't any instructions.
Finally, the private key is what gives full access to the digital currency wallet. Without it, no one will be able to access the assets contained therein. If the private key is lost -- or if it isn't properly communicated to someone -- then the cryptocurrency will be lost forever.
There's no way that anyone can recover cryptocurrency if they don't have the proper access keys.
Know Legal Implications of Cryptocurrency
Cryptocurrency brings with it different legal implications than other traditional investments. Many states have laws that allow executors of estates to manage and distribute digital assets the same way that they can other assets.
This is particularly pertinent with cryptocurrency, as the value of the assets can change significantly overnight. If the executor must sit on the crypto assets while figuring out how to access them or getting approvals to make the sales, the value could drop substantially.
Because of this, and other aspects of cryptocurrency, the chance of lawsuits in regard to estates that include digital assets is relatively high compared to other estate assets.
This accentuates the importance of clearly laying out what you want to happen with your crypto assets, as well as how people can access them. If the executor of your estate doesn't have access to your crypto assets, after all, there's nothing a court of law can do about it.
Create Clear Descriptions of What You Want
While it's always a good idea to write clear instructions of how you want your estate handled, it's even more important when you have cryptocurrency assets. Even if you have a fairly simple will -- where you leave everything to a surviving spouse or split the estate evenly among surviving children -- you need to have detailed instructions for how you want your cryptocurrency handled.
There are a few different aspects to this.
The first is obviously providing instructions on what you own and how the executor can access it.
Another important aspect is providing clear instructions on what you want the executor to do with it. Remember that even though you may have working knowledge of cryptocurrency, your heirs and your executor may not.
You can remove a lot of the headaches and potential in-fighting among your heirs by providing clear instructions on what the executor should do with your crypto assets.
One idea would be to instruct the executor to immediately sell all your crypto assets so they can be converted to traditional currency. Once sold, the value of the assets then won't be subject to such incredible volatility.
If you don't do this, the executor could face the wrath of your other heirs if they choose to hold onto the crypto asset, only to see the value plummet before they can sell it. Depending on how much crypto you own, this could be devastating to the overall value of your estate.
When you pass, you never want to cause your heirs extra grief or put more pressure on them and/or the executor of your estate. By providing clear instructions on how they should handle your cryptocurrency assets -- and how they can access them in the first place -- you'll be removing that pressure from everyone.
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