Planning to Leave Cryptocurrency to Your Loved Ones? Here is What to Know

If you are just beginning to explore cryptocurrency on trading platforms, it can be hard to imagine your holdings as something that needs to be discussed with an estate attorney. But if you have thousands of dollars in crypto — or if you believe that the value of your crypto is going to increase substantially over time — it’s vital to plan for your crypto in the event you pass away.

You ought to consider how your loved ones will manage and access your digital assets. Or, if you want to donate your crypto at the time of your passing, how will that be accomplished? Odds are, though, if you’re reading this, you have no idea what to do about it. That’s understandable — most people aren’t experts on setting up their estates for cryptocurrency.

Fortunately, there are plenty of resources available to help you figure out what needs to be done. And it starts with understanding the risks posed by not having a plan.

How Do You Hold Your Crypto?

There are different types of wallets used for separate purposes. For example, you might want to keep some cryptocurrency in a cold wallet, an offline storage device that isn’t connected to the internet and is therefore considered more secure. You may also want to keep crypto in a hot wallet connected to the internet; so, you can access your funds to trade on the go.

Whichever wallet you choose, consider using different wallets for separate cryptocurrencies. It will not only make it easier to track each currency’s price movements but also help protect against hackers who try to take all your assets at once.

Plan for Your Loved Ones in Advance

If you want to gift crypto assets to family and friends, that may be complicated by the fact that they don’t own wallets or have access to private keys. If you’re using an exchange or custodial wallet, include details about how the assets can be accessed by someone else, including passwords and private keys.

This can be done using paper copies of keys stored in a safe deposit box or a document such as a will, trust or power of attorney. Some exchanges require notarized documents to prove inheritance — it’s important to find out what’s needed before it’s too late.

Update Your Plan and Wallet

Updating your estate plan is crucial in maintaining a financially secure future for you and your loved ones. To achieve the best outcome, your estate plan should reflect the current state of your assets, not what they were three years ago or when your first child was born. Review it every few years or after a life change like marriage, divorce or childbirth to ensure it accurately reflects your wishes and financial situation.

Keeping your estate plan up-to-date ensures that assets go to the right people.

Secure Your Crypto Yet Make It Accessible

What if you leave this world without giving your loved ones access to your cold wallet? Consider creating a trust instead of leaving an inheritance outright to one person. The trust document will include information on who will control the account and what they should do with it.

This can keep cryptocurrency from being lost, stolen or controlled by someone who might not know what they are doing with it. The potential problem here is that your heirs may not have the same level of understanding of cryptocurrency as you do. So, it’s important to choose an executor or trustee who is knowledgeable about how blockchain technology works and how best to maintain its security.

Parting Shot

Most information about crypto assets and how they are distributed when the owner dies is still under scrutiny. It may take a while for the courts to catch up with these new developments, so investors need to get educated on the procedures for passing on their crypto proceeds.

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.