How Does Cryptocurrency Affect Estate Planning?
What is Cryptocurrency?
Over the past few years, the demand for cryptocurrency has skyrocketed. Cryptocurrency is a “digital, encrypted, and decentralized” currency (Forbes, 2022). As a result of its increasing popularity and accessibility, cryptocurrency has become a hot topic of consideration in modern-day estate planning.
Purchased cryptocurrency is typically held in a “digital wallet,” protected (locked) by a private key. This key functions as a password and is the only way to access digital assets.
In this way, “a cryptocurrency exchange is similar to a traditional brokerage or investment account in that a custodian, such as Robinhood or Coinbase, holds and maintains the owner’s account” (Belanger 2022). However, unlike a traditional bank account, there is no way for a designated owner (such as an executor) to access the assets without also having access to the private key.
How can I protect my digital assets?
The use of this private key is risky and complicates the successful transfer of assets to loved ones. This makes it essential to specifically address the access to, storage of, and ultimate distribution of your digital assets in your estate plan. An estate plan can carefully detail everything your executor would need to know about your cryptocurrency, such as the account’s existence and how it can be accessed.
How do I share my private crypto key?
You definitely should avoid including the private key in your actual will. This is because your will, upon death, becomes a public court document, accessible by anyone. And the last thing you want is some enterprising thief snagging your beneficiaries’ inheritance out from under their nose.
A good idea may be to detail where such information can be found, ideally somewhere analog, to avoid potential digital intrusions. Or you may simply note that you have cryptocurrency in your will and keep your private key information near where you store copies of your will and other important documents, as you might with other bank or brokerage account information.
You needn’t make any specific provision for the disbursement of your crypto if you don’t want to. As with the rest of your tangible and intangible personal property, your cryptocurrency will make up what’s called the “residue” of your estate and be distributed to your beneficiaries along with the rest of your assets. However, if you’d like to make special provisions for your Bitcoin or Ether, you certainly can, as you might for a piece of jewelry, musical instrument, or artwork.
If you have specific questions about how to protect your digital assets or how to move forward with your estate planning, let’s talk. Call us at 212-867-9120 or use the contact form below to schedule a no-cost consultation today.