Handling Cryptocurrency in your Estate Planning

Handling cryptocurrency in your will can be tricky due to its unique nature, but it’s important to ensure your digital assets are passed on to the right beneficiaries according to your wishes. The following are some steps to help you plan intelligently and effectively:

1. Identify the Cryptocurrency:

• List all assets: Clearly identify all the types of cryptocurrencies you own in your estate planning documents (Bitcoin, Ethereum, etc.) and the quantity of each. Make a detailed list to avoid confusion later.
• Specify exchange platforms: If you hold cryptocurrency on exchanges (for example, Coinbase or Kraken), be sure to specify the platforms in your will, as these exchanges might have specific processes for transferring digital assets.

2. Secure Private Keys and Wallet Information:

• Private Keys are Essential: The private key is what grants access to your cryptocurrency. Without it, the beneficiary won’t be able to access your assets.
• Safekeeping: Store your private keys, seed phrases (recovery phrases), and wallet details in a safe place, such as a secure password manager or a physical safe. Do not store them in the writing of the will itself for security reasons, as the will might become public record after your death.
• Include Instructions: In a document accompanying your will, include clear instructions for your Personal Representative on how to access your private keys and wallet. For instance, you might want to give access to your wallet to your Personal Representative or specify that the information should be given to a particular person upon your death.

3. Designate a Digital Executor:

• Digital executor: Appoint a “digital executor” (this could be someone separate from your general estate Personal Representative) who is familiar with cryptocurrency and can follow the instructions for accessing and distributing your assets.
• Clarify the role: Your digital executor should be responsible for retrieving your cryptocurrency and ensuring it’s transferred to the designated beneficiaries. Make sure they are technically capable of handling crypto-related tasks.

4. Provide Access to Digital Devices:

• If your cryptocurrency is stored in software wallets on a computer or phone, make sure the executor has the proper access to these devices (e.g., passwords, biometric access) and the crypto wallet software.  You can designate a legacy contact on your iPhone, for example.  You can also provide a trusted person your password to your computer.

5. Incorporate Clear Distribution Instructions:

• Specify beneficiaries: As with any other asset, specify who you want to inherit your cryptocurrency. You can leave a percentage or a specific amount of each type of cryptocurrency to individuals or entities.
• Consider contingencies: If the beneficiary predeceases you or is unable to claim the crypto, specify alternative beneficiaries in the will or trust.

6. Minimize Taxes and Legal Complexity:

• Cryptocurrency is subject to capital gains tax, and its transfer could be complicated from a tax perspective. Consult with an estate planning attorney and a tax professional to ensure that your beneficiaries are aware of any tax implications and that the process is as smooth as possible.

7. Avoid Storing Private Keys in the Will Itself:

• Storing private keys or sensitive wallet information directly in your will could be risky. If someone gains access to your will before your executor or digital executor, they could steal or mismanage your assets. Instead, include the information in a sealed letter, trusted document, or encrypted file that is stored securely with the will.

8. Use a Trust (Optional):

• Some people prefer to create a trust for their digital assets to ensure smoother transfer and management. A trust can allow for more flexibility and protection, especially if the crypto assets are significant or if you want to avoid probate.

9. Regular Updates:

• Keep your will and instructions updated as your cryptocurrency portfolio changes. If you acquire new coins or change wallets, update your estate plan accordingly.

By following these steps and working with professionals who understand both cryptocurrency and estate planning, you can ensure that your digital assets are properly transferred to your beneficiaries without complications.