Here’s What Happens to Your Cryptocurrency When You Die
One of the most attractive aspects of your crypto wallet is that no one can get into it. However, if you lose, this advantage becomes a serious handicap. To die without clear instructions about what will happen to your cryptocurrency or how your heirs can access it is tantamount to letting it disappear. Standard methods for transferring your assets are complicated by the privacy factors built into digital currencies. Here’s what you need to know about what happens to your crypto assets when you die, and what you can do to plan ahead while you’re alive.
What Makes Transferring Digital Currencies So Difficult
Cryptocurrency presents a unique challenge when it comes to estate planning, largely due to the way digital currencies are kept secure: Cryptocurrency is stored in a virtual wallet that can only be accessed with a private key (basically a super complex password). This remains true even after you die.
Your cryptocurrency will not be treated as money in your bank account. Instead, it is treated like a testamentary asset (meaning it has to go through the legal and legal process of distributing your estate). Unlike other assets that you can leave behind on your estate, cryptocurrencies only exist in virtual form and are encrypted. When you die, there will be no central authority (such as a bank) to help your heirs access your account. The only way to access your wallet is to have a private key.
You may instinctively just write down your private cryptographic key for your loved ones right in your will, but that means compromising the benefits of encryption. Once you die and your will goes through the probate process, it becomes a public document, so leaving your key in a will is a big risk – your beneficiary must make sure the assets are withdrawn from the wallet before your key becomes public. Once you’re gone, it’s hard to guarantee.
There is also a risk when it comes to the old school method of writing down your cryptographic key on a physical piece of paper; a bad actor can find it and get into your wallet while you’re still alive. As Time writes , scheduling cryptoassets requires striking a “delicate balance between security and accessibility.”
It is the features that keep digital currencies safe during your lifetime that make them inaccessible to your loved ones after your death. So where does this leave you?
Steps you can take to transfer your crypto assets
While traditional estate planning presents some challenges, there are steps you can take now to prepare your loved ones to access your cryptocurrency wallet after you die.
1. Name the beneficiary of your crypto assets in terms of real estate. As with any physical asset, you need to specify who gets what, where they can find it, and how they can access it.
2. Document carefully where your cryptocurrency is stored. Whether your assets are held in a custodial account on a crypto exchange or can be found offline in a cold wallet, your beneficiaries need to know where to find your assets.
Here are some best practices according to Kiplinger :
- Document the location of the wallet itself (ideally kept in a fireproof safe or safe deposit box).
- Document your private and public keys for every wallet you own. Both are required to access your cryptocurrency. Keep both keys in safe but separate locations.
- Document any other information that may be required to access your wallet, such as a PIN or recovery phrase.
3. Decide where to document this information. True, we pointed out the risks of writing down your private keys at one time or on a piece of paper. But if there is hope that your loved ones will gain access to your digital assets, then you will have to take some measure of risk. You may want to consider including all of this information in your estate plan and entrusting it to an attorney, as well as keeping copies of documents in a physical safe.
bottom line
The crypto landscape is constantly changing and it is on you to ensure that your heirs can access your cryptocurrency after you are gone. The alternative is that your assets essentially die with you. If you are hoping to leave digital currency with your loved ones, you need to create clear guidelines to ensure that they are not locked in your wallet forever.