Cryptocurrency and Trusts

By:  Guest Author Shaheer Hashmi 

Over the last several years, the use, maintenance, and prestige of cryptocurrencies such as Bitcoin has continued to grow rapidly, with no signs of slowing. Due to the novelty of using cryptocurrency, some people have not yet considered how to incorporate these unconventional assets into their estates, so that upon their death, their cryptocurrency can seamlessly transfer to their beneficiaries. Unlike with a traditional bank account, where your lawyer can help you access the account of a decedent by providing proof that you are the executor of their estate, there is no definite or overarching bank system for cryptocurrency. It is wholly decentralized. So, how do we then begin to plan and address the addition of cryptocurrency into our estate planning? 

Whilst it is not the only, or “right” answer, Trusts are likely the best way to ensure that upon your death, your cryptocurrency will not be lost, and will also have the potential to avoid probate – thus saving money and time for your beneficiaries. Trusts will also keep your cryptocurrency assets private and allow you to create a plan for who will have access to your accounts, and how you want the assets divided.

Do I need to have a trust if I own cryptocurrency?

Not necessarily! It is simply one good solution. Fundamentally, the client wants to avoid probate with respect to cryptocurrency assets. The most important thing is to establish a plan as to how your accounts will be managed, which is not ideologically different from how to make sure a car or house you own goes to whom you choose. You can just as easily have a Will written directing where your account(s) information is stored, and who will get what out of your crypto assets. Essentially, there is a clear and direct means to manage these assets upon your death, and whilst trusts appear to be the best method, they are not the only method to achieve this.

Could I just write my own will for someone to get my money once I am dead?

No. You cannot just write your account information on a piece of paper or a sticky note and have it function as a valid will, with no groundwork in place expecting heirs to be able to easily get your money after your death. Not only can a self-written document be legally invalid, it is illegal to withdraw money from a deceased person’s account(s)without a probate, unless there are other legal documents indicating individuals as beneficiaries, or they are joint owners on those accounts. And whilst there are no specific examples of this playing out with cryptocurrency accounts, the principle still applies here. So, having legal documents would ensure both accessibility and legality for your beneficiaries to retrieve anything from such accounts. 

Why a trust?

As mentioned earlier, a trust is one of multiple ways you can manage and safeguard the inheritance and maintenance of your cryptocurrency assets.  However, the trust is tried and true for a large or complex estate, which might include cryptocurrency.  We recommend this method because trusts can also allow for tax planning and provide the safest transfer of assets to your beneficiaries upon your death, in a document that can be amended by you throughout your lifetime. Especially considering that cryptocurrency as an asset is not typically stable and tends to see to rapid and drastic fluctuations, the accountholder wants to be prepared for those changes, and trusts give us the most liberty to do so. 

Though creating a trust is not necessary, we recommend one because it will make sure that your cryptocurrency investments will not be lost after you pass away, but also will help you maintain a level of privacy. You can also appoint a manager for your cryptocurrency assets, so that after you die, beneficiaries who do not know how to manage or utilize these assets will not be overwhelmed.

In conclusion.

There are many ways for you to manage and ensure the legacy of your cryptocurrency investments, whether or not you establish a trust. We recommend that you make sure you cover your bases by consulting an experienced estate planning attorney and planning for your future. An experienced attorney will be able to guide you and your research in determining your needs and options and approaching one should be your first step.