The primary goal of your estate plan is the overall protection of wealth and assets in the event of your death or incapacitation. It ensures your assets may be distributed, as you see fit, through a will or trust agreement. However, in order to accomplish that goal, it is vital any and every asset is identified and accounted for within your estate plan.
The advancement of technology has brought us “digital assets”, specifically speaking, cryptocurrencies.
A cryptocurrency is a form of digital money and is treated differently than most traditional assets. You must clearly identify your cryptocurrency investments in your estate plan and ensure any beneficiaries are aware of its existence, where to find it, and how to access it.
Establish the Existence of your Cryptocurrency
Cryptocurrency accounts are anonymous. They do not function like a savings or checking account where documentation verifying its presence is available. Therefore, if you were to pass away without communicating your cryptocurrency’s existence, it would pass away with you.
Of course, it is understandable for security reasons, to not want everyone to know about your cryptocurrency ownership. However, it is crucial to devise a method for passing on the details surrounding your account to a trusted confidant such as your identified executor or trustee.
Ensure Cryptocurrency Accessibility
Unlike traditional bank accounts that may be accessed by your chosen executor after your death, your digital wealth is stored anonymously and securely through the use of cryptography (information protection through encryption and decryption). This allows your accounts and any cryptocurrencies to be safeguarded from access without the account holders private key or password.
Your executor or beneficiaries must have your private key or password in order to access and/or distribute the cryptocurrency established in your estate plan. If you are the only person who is aware or has access to your digital “wallet”, the cryptocurrency you own will remain inaccessible and be lost forever.
It is recommended that you create physical and digital copies of your private keys and passwords, i.e. on good old fashioned paper and a flash drive. Store them safely in a home safe or bank safety deposit box so they may be accessed later by your executor or beneficiaries.
Utilize Hardware Wallets
When purchasing cryptocurrencies on an online exchange, they are automatically stored within that exchange’s own default “wallet”. These default wallets establish accessibility to investors but there is always the lingering possibility of cyber theft from hackers. It is recommended investors transfer their currency to a personal hardware wallet. Essentially a hardware wallet is an encrypted and password protected flash drive used for securely storing digital information.
These also should be stored safely in a home safe or bank safety deposit box and some investors even utilize a secondary hardware wallet containing an exact copy of the original as an additional means of access. These too should be included in your estate plan, allowing your beneficiaries or executor access to your digital investments.
Confirm Power of Attorney for Fiduciaries
A well-drafted Power of Attorney document grants an executor the capacity to manage and make decisions regarding assets and investments on behalf of the principle (the deceased or incapacitated). Depending on how the document is written, the endowment granted by the Power of Attorney can come into effect immediately after the death or incapacity of the principle.
However, in the context of a cryptocurrency, it is crucial to include language that grants an executor explicit authority over any cryptocurrency assets and any necessary information required to access them. This is important as states begin passing differing laws surrounding the empowerment of fiduciaries to manage digital assets but may not yet provide explicit power over cryptocurrencies.
California’s Leading Estate Plan & Asset Protection Attorneys
There is additional consideration you must take to protect your cryptocurrency for your beneficiaries and indeed more planning is required than is needed for traditional assets. Beginning with the steps provided and speaking to an estate planning attorney will help you to ensure your digital assets are effectively preserved and passed on to your heirs.
Unless investors in cryptocurrencies plan ahead, they risk losing everything. The estate planning attorneys at Kundani, Chang, Khinda, & Wilson LLP are ready and able to assist you with all of your estate planning preparations. Contact our legal experts today to schedule a free, no pressure consultation to learn how we can help.