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Crypto Estate Planning — Ensure Your Heirs Will Benefit From Your Crypto Assets

Everyone who gets involved in crypto likes to talk about it with friends and family.

That might even be one reason why you started owning some — holding your own with your kids and/or grandkids!

There’s one topic no one likes to talk about: death, and what to do with the digital assets they’ve accumulated.

This article about crypto estate planning will get you started on thinking about this important topic.

I’m not a lawyer or a financial professional, so this is not legal or financial advice.

Find a professional who’s well versed in crypto to help you navigate your way to peace of mind.

Dying Without a Will

As you may know, people who die intestate (without a will outlining how they want their assets distributed) force the courts to do it on their behalf.

That’s the last thing you want to have happen. It could mean that someone or some organization doesn’t receive a share of your assets, or it could mean that someone you didn’t want to have a share does.

So it’s important that you create a crypto estate plan and include it in your will.

Part of that plan is creating a list outlining where all your crypto is stored (e.g., wallets, exchanges, rewards platforms, DeFi liquidity pools).

If no one can find the private keys for your wallets, the crypto you hold in them will be lost forever.

Some crypto experts believe that about 20% of all the Bitcoin in existence today (which comes to almost 3.8 million BTC) is gone forever, due to someone losing, destroying or forgetting a private key.

Those lost BTC are worth well over $15 billion at today’s price (March 2022).

Don’t let your crypto assets join them!

An estate plan is essential if you intend to invest in cryptocurrencies that can appreciate, such as Bitcoin and Ethereum. Some crypto experts believe Bitcoin could go to $500,000 or even $1 million per coin in the next ten years.

That’s about 11X to 22X today’s price. Bitcoin will take many other cryptos, especially Ether, with it on that ride. So you could end up with crypto holdings worth a substantial amount in fiat money.

It’s not quite as important to have a plan if you intend to invest in only stablecoins, which don’t appreciate in price. But who wants the courts to decide how to split the assets among heirs?

Crypto Estate Planning 101

An estate-planning lawyer who knows crypto, or a financial advisor who specializes in crypto assets, will tell you that the most essential part of crypto estate planning is making it easy for the executor to find everything you own.

Since crypto doesn’t have a literal paper trail, everything will likely be behind, at a minimum, a username and password.

If you’re practicing good security hygiene, you’ve made it difficult for anyone to get into your devices and accounts:

  • Your computer may require a password to start it up.
  • Each wallet you have on your computer will need a username and password, or the seed phrase (12 or 24 words) to restore access.
  • Hardware wallets will require the same information.
  • Each exchange you’ve used will have a unique password.
  • Every rewards platform you use to earn interest will have a unique password too.

Also keep in mind that most exchanges and rewards platforms require two-factor authentication (2FA) to gain access. So your executor will need access to your phone and your Google Authenticator or other 2FA app.

How I Store All My Crypto Information

I have accounts with four different exchanges, three different rewards platforms, a hot (software) wallet, a multi-currency wallet, and a cold (hardware) wallet.

To make it easier for me, and for my heirs, to manage all the usernames, passwords and seed phrases, I bought two “little black books” to record all that information in one place.

I then store one of those books in our safe, and have another one off-site, but somewhere I can easily reach when I need to update information. The code for the safe and the location of the second book are in a sealed letter with my lawyer.

If you decide to keep one set of records in a safety deposit box at your bank, ensure your executor knows about that.

Also, be sure that it’s not the only copy of all your details. If there’s ever a “bank holiday” (a euphemism for shutting down temporarily to avoid a bank run), you could be left without access to your crypto account information when you need it most.

Inside both notebooks, I use one page per account, listing all the pertinent information for each one. This includes:

  • URLs to websites, including those to software wallet downloads
  • usernames and passwords
  • the 12 or 24 words in the seed phrase, if a restore option is available
  • whether a 2FA code is required

I use the first page in the notebooks for details like the username and password for my computer, the 7-digit code to get into my phone, and any other more general information my executor might need.

I recommend not using biometric identification to permit access to computers and phones.

There are too many stories, and movie/TV plots, about spouses and intruders using facial recognition while someone’s asleep or tied up to break into the phone. Some show police accessing phones of dead people by using the fingerprint or facial recognition.

And in the U.S., courts have decided that while passwords are protected by the Constitution, biometric data isn’t. So the police can force you (with the threat of jail time) to unlock your phone, tablet or computer if you use facial recognition or a fingerprint for access.

Choose an Executor Who Understands Crypto

If the person you’ve already selected to be your executor isn’t familiar with cryptocurrencies, you may want to add a co-executor just for your crypto assets.

This should be a person who’s familiar with trading crypto on exchanges, especially things like limit orders, reading technical charts, and knowing where to go to find the current price of cryptocurrencies.

This executor will likely need to deal with the income tax/capital gains tax demands of your country’s tax authorities as well. Make your executor’s life easier by recording all your transactions in a digital or paper document.

And leave instructions on where to find that document!

Transfer on Death

If you use Facebook a lot, you probably remember seeing a birthday notification for a friend who had died. That’s because Facebook had no way for the heirs to close your friend’s account.

That’s the state that crypto is in now. Most exchanges and rewards platforms don’t have a Transfer on Death (TOD) policy or procedure.

A TOD policy lets an executor, with proof of death, simply transfer ownership of the deceased’s account to the estate or to an heir.

Without it, the executor will have to log in and sell all the assets or transfer them out of the account.

This is something to track for each exchange and rewards platform you transact on. It would be much simpler for your heirs if you could simply bequeath the assets in an account.

Stay Up-to-Date

Good crypto estate planning, like conventional estate planning, means keeping your written plans current.

Divorces, new grandchildren, a change in direction for your charitable donations — all of it needs to be included, and up-to-date, in your estate plan.

If you have substantial assets, you may want to create an LLC or a trust, then trade inside that entity. That allows your assets to survive your death untouched by courts and the government.

You’ll need to name one or more of your heirs to manage the LLC or be the trustee. That person should be familiar with crypto, so that the assets you carefully grew aren’t lost due to poor judgement or limited trading experience.

You’re Unique — So Is Your Crypto Estate Planning Situation

Don’t leave your crypto assets at risk with a cookie-cutter estate planning solution. Consult with an expert or two to ensure you create the right crypto estate plan for your needs and, more importantly, your heirs’ needs.

Use an accountant, a lawyer, or a financial advisor who knows crypto, and how to deal with your digital assets after your death.

If you can’t find one in your area, don’t settle for convenience. You may have to invest some time finding the right professional for your unique needs.

While you’re doing your research, start putting into effect what you learned in this crypto estate planning article. You’ll be glad you did. Your heirs will too!

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