While cryptocurrency has been around for a number of years, there is a new wave of people who are making significant money by trading in digital assets. Estate planning and cryptocurrency must go hand in hand in order to avoid significant losses should something happen to the investor, according to Jay Lenox of Beck & Lenox Estate Planning & Elder Law, LLC. Here’s a good article from Forbes on the topic “Cryptocurrency and Estate Planning: What Digital Investors Should Know” .
Cryptocurrency is digital currency used to buy online goods and services and traded in several markets. Cryptocurrency is not issued by any government. Instead, it’s created and managed through blockchain, a technology comprised of decentralized computers used to record and manage transactions. Users claim cryptocurrency is extremely secure. Sometimes, cryptocurrency is so secure that a lost password can cause the owner to lose millions.
The most popular cryptocurrencies are Bitcoin, Ethereum, Dogecoin and Binance Coin, although there are many others, and it seems like a new cryptocurrency is always being introduced. The total value is estimated at $1.35 trillion.
Another digital asset class gaining in popularity is the NFT, or non-fungible token, used to buy and sell digital art. Each NFT, which is also supported by blockchain technology, can be anything digital, like music or artwork files. The buyer of an NFT owns the exclusive original and the artist, in some cases, retains proprietary rights to feature the artwork or make copies of it. Numerous NFTs have already sold for millions.
Owning digital assets without a plan for passing them along to the next generation, could leave heirs empty handed.
Even if your family knows you own cryptocurrency, and even if they know your passwords or have access to the digital wallet where you keep your passwords, they still may not be able to access your accounts. Probate for digital assets is still very new to the courts, and if you can avoid probate for this asset class, you should.
Blockchain technology, the system behind cryptocurrency and NFTs, requires a private key to access each account, typically in the form of a long passcode. Just as you would not put account numbers into a will, you should never put passcodes or usernames in a last will and testament to prevent them from becoming part of the public record. However, only by understanding how each currency works after the original owner dies and preparing to provide the information to your executor, can your heirs receive these assets.
The nature of cryptocurrency is decentralization. There is no governing body that oversees or regulates cryptocurrency. Laws around cryptocurrency are still evolving, so your estate plan may benefit from a trust to protect digital assets.
Don’t neglect to have a discussion with your heirs about your estate planning and cryptocurrency, including a knowledge transfer of the step-by-step process they’ll need to know to access your digital assets. An estate planning attorney with experience with digital assets and your state’s laws about digital assets will help protect these assets and ensure they are passed to the next generation without evaporating into cyberspace.
Reference: Forbes (July 21, 2021) “Cryptocurrency and Estate Planning: What Digital Investors Should Know”