As you work on creating an estate plan, it is imperative that you ensure that all of your assets are accounted for and included in your will or trust. However, as digital investments such as cryptocurrency become more common, you may find yourself wondering whether you should include these assets in your estate plan, or if it is even possible. Particularly if you are new to cryptocurrency, you may feel uncertain about what steps you need to take to protect these investments after your death.
Fortunately, you are not alone if you feel this way, as the emergence of cryptocurrencies like Bitcoin and other assets that use blockchain technologies (like NFTs) has left many people confused as to the effects these assets will have on their estate plans. If you have been left feeling uncertain how cryptocurrency could affect your estate plan, here is a look at answers to the most frequently asked questions we have received about cryptocurrency and estate planning.
What Is Cryptocurrency?
Of course, as we begin talking about cryptocurrency and estate planning, you may find yourself wondering what exactly cryptocurrency is. Essentially, cryptocurrency is a form of digital cash that can be exchanged for goods and services similar to traditional currency. However, the primary difference between traditional currency and cryptocurrency is that cryptocurrency is not backed by a government entity. Instead, cryptocurrency operates within a "blockchain", which is also referred to as a public ledger. Cryptocurrency users from around the world verify cryptocurrency transactions by using their computers to solve complex algorithms. Unlike traditional "fiat" currency, cryptocurrency can be transferred directly from person to person without involving a third party like a bank, allowing for faster, simpler transactions.
One of the biggest differences between cryptocurrency and fiat currency is that cryptocurrency does not have a physical object such as a coin or dollar bill to represent its value. Cryptocurrency exists entirely within the digital world. The cryptocurrency was first developed in the wake of the 2008 financial crisis as an alternative to traditional banking with the emergence of the most well-known cryptocurrency, Bitcoin. Cryptocurrency has since taken off with over 1,000 cryptocurrencies have emerged.
While many financial professionals are skeptical about cryptocurrency, many people see it as a stable cash alternative. Considering cryptocurrency continues to grow in popularity, and more businesses are beginning to take cryptocurrency as a form of payment, it is likely that cryptocurrency will be around for a while. Thusly, if you are like many people and are considering acquiring cryptocurrency, or you have already done so, it is critical that you make sure that this valuable asset is protected by including it in your estate plan.
Should I Include Cryptocurrency in My Will?
As you begin to acquire cryptocurrency, it is vital that you make sure that these assets are accounted for in your estate plan. Even though cryptocurrency is new, there are already plenty of cautionary tales of Bitcoin investors who left behind massive digital wealth, but family members were unable to access it after their loved one's death. If you own cryptocurrency, it is critical that you not only include it in your will, but you will also need to provide a guide for your loved ones on how they can access it. To ensure your loved ones are able to inherit and access your cryptocurrency following your death, you will need to:
- List your cryptocurrency in your will.
- Include information about your digital wallets in your will.
- Create a memorandum to your will that includes passwords and PINs for accessing your cryptocurrencies.
- And include a step-by-step guide in your will explaining how your beneficiaries can access your cryptocurrency.
Transferring digital blockchain-based assets to your beneficiaries is not simple. In order to ensure your digital wallet is not lost after your death, you need to ensure that you have included the proper provisions in your estate plan to make it possible for your loved ones to access your cryptocurrency.
Is It Better to Include Cryptocurrency in a Trust?
While leaving your cryptocurrency to your loved ones in a will can help prevent your cryptocurrency from being lost, there is still a risk that your beneficiaries may struggle to find and use your cryptocurrency after your death, and less tech-savvy beneficiaries may be unsure what to do with it. People with cryptocurrency may then find it more beneficial to include a trust in their estate plan for the safekeeping of their cryptocurrency. Here is a look at just a few of the reasons you should consider transferring your cryptocurrency to a trust before your death.
Keeps Your Cryptocurrency Out of Probate
When you die, most of your assets will have to go through probate court (depending on the laws in your state) before they can be passed to your beneficiaries. Even if you have a will, your estate must pass through court before your property is distributed. This process can take months, or even years, making it a costly and time-consuming process for your loved ones during a difficult time.
During the probate process, your beneficiaries won't have access to your cryptocurrency. Considering the volatile nature of cryptocurrency, your digital wallet could lose significant value before your beneficiaries even have access to it. Alternatively, should you create a trust and place your digital wallet within the trust before you die, your cryptocurrency will bypass the probate process. Your successor trustee will have immediate access to your cryptocurrency following your death, which can save your loved ones time and money.
Ensures Someone You Trust Oversees Your Cryptocurrency
Including your cryptocurrency in your estate plan will help to ensure that your cryptocurrency is not forgotten after your death. However, if your beneficiaries are not tech-savvy, they may still have trouble accessing or using it, which could result in your cryptocurrency being lost or stolen. Alternatively, under a trust, you can choose a successor trustee to manage your cryptocurrency who is already familiar with digital wallets and knows how to navigate cryptocurrency exchanges. Your trustee will be responsible for accessing and maintaining your digital wallet as well as distributing it in accordance with the terms of your trust. This also gives you a chance to have a say in how your cryptocurrency is managed following your death, which can be helpful if you want your beneficiaries to stay invested in cryptocurrency.
Learn More About About Cryptocurrency and Estate Planning
Ultimately, whether you choose to include your cryptocurrency in a will or a trust, including your digital wallet in your estate plan will help to protect these assets and prevent them from being lost upon your death. Feel free to contact us to learn more about incorporating cryptocurrency into your estate plan.
For more information please request a copy of our Legal Services Schedule (PDF format).
