There are several types of cryptocurrencies that are commonly used today including Bitcoin, Ethereum, Solana, Polkadot, and Dogecoin to name a few. For those who use cryptocurrency for transactions or as part of their investment portfolio, it is essential to understand how to ensure these digital assets are distributed according to your wishes upon your death. Cryptocurrency is difficult if not impossible to access for those who do not have the owner's "private key." If you have digital assets such as Bitcoin, you need to know all you can about cryptocurrency and your estate plan. An estate planning attorney at Baxter Legal Services in Washington can answer your questions and provide legal guidance. Consider scheduling a consultation by calling 425-686-0574.
An Estate Plan Is Critical for Those Who Buy Cryptocurrency
Those who hold Bitcoin or other cryptocurrency assets should understand the importance of including these assets in their estate plans. Unlike currency held in a bank or investment account, cryptocurrency may be impossible for loved ones and family members to access upon your passing. There are three key reasons to consider an estate plan for those who buy cryptocurrency:
- Avoiding probate. Surviving family members may find themselves immersed in a costly and dubious probate process without an estate plan, regardless of whether they knew about the digital assets. Accessing these accounts is almost impossible without specific information.
- Blockchain technology. Bitcoin and other cryptocurrencies operate on blockchain technology, which means there is generally a lengthy passcode (private key) necessary for anyone to access these assets once the owner is deceased. An estate plan will provide those with cryptocurrency assets peace of mind knowing that should something happen unexpectedly, survivors will have the information essential to accessing those investments.
- Cryptocurrency is not governed. Cryptocurrency is processed and recorded across countless computers which makes it secure, but it is not governed by any bank or agency either state or federal. Because Bitcoin and other cryptocurrencies are decentralized at the current time, it is vital for investors with these assets to take control of their security; this can be accomplished through estate planning.
Cryptocurrency and Your Last Will And Testament
Unlike tangible property such as jewelry, antiques, books, property, and other assets that can be located through bank accounts or other paper trails, cryptocurrency does not leave a paper trail. When family members or other beneficiaries are not aware a person has cryptocurrency, it can be lost forever upon an investor's death. Those who have Bitcoin or other types of cryptocurrencies should consider listing it in their will along with other vital information that will make it accessible following death.
It is a good idea to not only describe your cryptocurrency in your will, but where it may be located. Digital wallets are key to accessing cryptocurrency and are often located on a smartphone or computer. Security can often be an issue with a will, so a memorandum should be created that clearly outlines:
- What type of digital wallet it is
- Key information to access each digital wallet along with any pertinent websites or accounts (login or usernames, passwords, etc.)
- Device cryptocurrency is stored on (smartphone, computer, USB drive)
- Links to any websites necessary for password managers or exchanges
Upon creating your will and cryptocurrency memorandum, make certain the executor of your estate knows where to locate these critical documents.
Cryptocurrency And Passwords
Without remembering the password to cryptocurrency accounts, it is impossible to access the private key necessary to access the accounts. This has become a growing issue among Bitcoin and cryptocurrency investors who have lost approximately $140 billion in lost or stranded digital wallets as of January 2021. The contents of digital wallets may seize up or become encrypted forever when account owners cannot access their private keys due to the inability to remember the password. Security.org recommends:
- Creating a strong password consisting of a minimum of 16 characters. These characters should include letters, numbers, and punctuation marks. A password manager can also be used to generate a password that is strong. Passwords used for cryptocurrency accounts should never be used for other online accounts.
- Making sure the password is securely stored. As already mentioned, it is impossible to recover cryptocurrency without a password. Even if you think you will remember it, write it down and put it in a secure place such as a vault. Consider storing your password in a password manager that is encrypted should the paper copy you stored get stolen or lost.
Three Things to Know About Cryptocurrency And Your Estate Plan
For many who are not familiar with cryptocurrency (who may be your loved ones or family members), it can indeed seem quite cryptic. Bitcoin was introduced in January of 2009. At that time, it seemed to many just a passing fad, something that either was not real or would not last. Cryptocurrency is real, and as those who invest in it know, did last. There are three important things to know about cryptocurrency and your estate plan:
- Cryptocurrency can evaporate without a trace. Considering there are no physical accounts or banks involved with cryptocurrency, it is untraceable. Only those you trust implicitly should have access to your virtual accounts.
- It is extremely secure and exists only on an online ledger which is why it is imperative that any heirs can access your passcodes, passwords, and digital wallet.
- The Internal Revenue Service taxes cryptocurrency as a property. Cryptocurrency transactions are open to capital gains tax regulations, so it is important to include precise language and instructions in your trust when designating your assets to beneficiaries.
Consider Scheduling A Consultation With Baxter Legal Services
Those who have cryptocurrency often do not realize how difficult it can be for surviving family members to access accounts upon their loved one’s death. When no one is aware you have these assets, they will disappear forever and be of no benefit to your heirs, regardless of the cryptocurrency’s value. The importance of including cryptocurrency in your will or trust cannot be stressed enough. Baxter Legal Services is happy to discuss cryptocurrency and your estate plan with you so that you can make informed decisions that benefit your loved ones following your death. Consider scheduling a consultation with our Washington estate planning attorneys at 425-686-0574.