Category: Cryptocurrency

Incorporate Cryptocurrency into your Estate Plan

Incorporate Cryptocurrency into your Estate Plan

If you have $10 in a cryptocurrency wallet or $1 million stashed offline in cold storage, you need a plan to help your next of kin gain access when you die, especially if heirs are not familiar with the brave new world of digital money. That’s the no-nonsense message from a recent article titled “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever” from Next Advisor. It is estimated that early buyers of cryptocurrency have already lost millions or billions because they died without a succession plan or lost their wallet keys and were not able to access their accounts. You need to incorporate cryptocurrency into your estate plan.

Cryptocurrency is not small change today. It is here to stay.

Crypto estate planning is a balance between keeping the assets secure and accessible at the same time. Bitcoin and other cryptocurrencies are decentralized, meaning they are not issued by any country’s central banking authority. Unless another person has the right information to access the account, the assets will be gone permanently when you die. There is no paper trail and no 800-number to call.

The first step is to set up proper storage for the crypto and any other digital assets, like NFTs (non-fungible tokens) under a number of layers of security. You will need to set up tiered back-up accounts to store these assets, with varying layers of security.

If you buy and sell crypto on an exchange, loved ones may be able to access the exchange by signing into the company’s portal, similar to ones commonly used for banking, accounting, or financial investments. They need to know your password and username and will probably need access to your cell phone and email to receive a two-step verification code.

However, if you have significant sums of cryptocurrencies, you will need a more secure back-up option, which will be harder for executors to access. You will need to give your executor a crypto education as well as an estate plan.

There are centralized crypto exchanges, like Coinbase. There are hot wallets, also known as mobile wallets, that are not on a centralized platform and require a 12 or 24 word secret seed phrase to gain access. There’s also cold storage, which works like a digital safe via a USB drive. A 12 or 24 word secret seed phrase is also needed to recover or backup account information.

Your plan to pass these assets to the executor includes a physical copy of security phrases and a physical fireproof, waterproof lock box. Secure your cold storage hardware wallet—a private wallet key with a 12 or 24 word secret seed phrase—in the lockbox and make sure your executor knows the location of the safe and how to access it. Then, in one or preferably more than one separate location, store physical documents describing each digital wallet.

Describe each wallet in detail: is it an exchange, mobile wallet, or hardware wallet? Include all of the security keys, seed phrases, usernames, password information with instructions for each, including cell phone codes for the mobile wallets on your phone. Do not store anything on the internet.

You will likely need to educate family members about how crypto and other digital assets work.  They may not be comfortable with this new kind of asset. An alternative is to liquidate digital currency into more traditional assets, by transferring the crypto from the wallet into a centralized exchange, then selling it for U.S. dollars. There will be taxes due, since the IRS recognizes selling crypto as selling assets. Incorporating cryptocurrency into your estate plan is a complicated process that should only be undertaken with the advise and guidance of your estate planning attorney. If you would like to learn more about protecting digital assets, please visit our previous posts. 

Reference: Next Advisor (Feb. 17, 2022) “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever”

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storing passwords in case of death

Storing Passwords in Case of Death

As more and more aspects of our lives become digital, storing passwords in case of death becomes even more urgent. Despite having the resources to hire IT forensic experts to help access accounts, including her husband’s IRA, it’s been three years and Deborah Placet still hasn’t been able to gain access to her husband’s Bitcoin account. Placet and her late husband were financial planners and should have known better. However, they didn’t have a digital estate plan. Her situation, according to the Barron’s article “How to Ensure Heirs Avoid a Password-Protected Nightmare” offers cautionary tale.

Our digital footprint keeps expanding. As a result, there’s no paper trail to follow when a loved one dies. In the past, an executor or estate administrator could simply have mail forwarded and figure out accounts, assets and values. Not only don’t we have a paper trail, but digital accounts are protected by passwords, multifactor authentication processes, fingerprints, facial recognition systems and federal data privacy laws.

The starting point is to create a list of digital accounts. Instructions on how to gain access to the accounts must be very specific, because a password alone may not be enough information. Explain what you want to happen to the account: should ownership be transferred to someone else, who has permission to retrieve and save the data and whether you want the account to be shut down and no data saved, etc.

The account list should include:

  • Social media platforms
  • Traditional bank, retirement and investment accounts
  • PayPal, Venmo and similar payment accounts
  • Cryptocurrency wallets, nonfungible token (NFT) assets
  • Home and utilities accounts, like mortgage, electric, gas, cable, internet
  • Insurance, including home, auto, flood, health, life, disability, long-term care.
  • Smart phone accounts
  • Online storage accounts
  • Photo, music and video accounts
  • Subscription services
  • Loyalty/rewards programs
  • Gaming accounts

Some digital accounts may be accessed by using a username and password. However, others are more secure and require biometric protection. This information should all be included in a document, but the document should not be included in the Last Will, since the Last Will becomes public information through probate and is accessible to anyone who wants to see it.

Certain platforms have created a process to allow heirs to access assets. Typically, death certificates, a Last Will or probate documents, a valid photo ID of the deceased and a letter signed by those named in the probate records outlining what is to be done with assets are required. However, not every platform has addressed this issue.

Storing a list of digital assets, such as passwords, in case of death  is about as much fun as preparing for tax season. However, without a plan, digital assets are likely to be lost. Identity theft and fraud occurs when assets are unprotected and unused.

Just as a traditional estate plan protects heirs to avoid further stress and expense, a digital estate plan helps to protect the family and loved ones. Speak with your estate planning attorney as you are working on your estate plan to create a digital estate plan. If you would like to learn more about managing digital assets, please visit our previous posts. 

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”

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Cryptocurrency should be considered in estate plans

Cryptocurrency should be Considered in Estate Plans

Cryptocurrency accounts are not like any traditional investment accounts. However, their growing prevalence and value means cryptocurrency should be considered in more and more estate plans, especially when they take an enormous leap in value. These accounts are more vulnerable, according to the recent article “Millennial Money: What happens to your crypto if you die?” from The Indiana Gazette, and in most cases, there’s no way to name a beneficiary for your crypto accounts.

If you store your cryptocurrency on a physical device at home and a few friends know your key—the crypto password that grants access to a crypto wallet—one of those friends could very easily wander into your home and steal your crypto without you even noticing.

On the flip side, if you don’t share your key with anyone and become incapacitated or die, your crypto assets could be lost forever. Knowing how to store these assets safely and communicate your wishes for loved ones is extremely important, more so than for traditional assets.

How is crypto stored? Crypto “wallets” are digital wallets, managed on an app or a website, or kept on a thumb drive (also known as a memory stick). How you store crypto depends in part on how you intend to use it.

A “Hot Wallet” is used to buy and sell crypto. They are usually free and convenient but may not be as secure as other methods because they are always connected to the internet.

“Cold Wallets” are used to store crypto for a longer period of time, like a deep freezer.

The Hot Wallet is more like a checking account, with money moving in and out. The Cold Wallet is like a savings account, where money is kept for a longer period of time. You can have both, just as you probably have both a checking and savings account.

Whoever holds the “keys” to the wallets—whoever has custody of the password, which is a series of randomly generated numbers and letters—has access to your cryptocurrency. It might be just you, a third-party crypto exchange, or a hybrid of the two. Consider the third-party exchange a temporary and risky solution, as you don’t have control of the keys and exchanges do get hacked.

Naming a beneficiary in your will and adding a document to your estate plan containing an inventory of cryptocurrency and any passwords, PINs, keys and instructions to find your cold wallet is part of an estate plan addressing this new digital asset class.

Do not under any circumstances include any of the crypto information in your will. This document becomes part of the public record when filed in court and giving this information is the same as sharing your checking, saving and investment account information with the general public.

Some platforms, like Coinbase, have a process in place for next of kin, when an owner dies. Others do not, so it’s up to the crypto owner to make plans, if they want assets to be preserved and passed to another family member.

Cryptocurrency should be considered in your estate plans if you plan to trade heavily in it. Preparing for cryptocurrency is much the same as preparing for the rest of your planning. Keep the plan updated, especially after big life events, like marriage, divorce, birth, or death. Keep instructions up to date, so the executor and beneficiaries know what to do. Bear in mind that crypto wallets need occasional updates, like every other kind of digital platform. If you would like to learn more about cryptocurrency and estate planning, please visit our previous posts.

Reference: The Indiana Gazette (Nov. 7, 2021) “Millennial Money: What happens to your crypto if you die?”

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Using Cryptocurrency in your Estate Planning

Cryptocurrency is a digital currency that can be used to buy online goods and services, explains Forbes’ recent article entitled “Cryptocurrency And Estate Planning: What Digital Investors Should Know.” Part of cryptocurrency’s appeal is the technology that backs it. Blockchain is a decentralized system that records and manages transactions across many computers and is very secure. If you are intent on using cryptocurrency in your estate planning, there are things you need to know.

As of June 24, the total value of all cryptocurrencies was $1.35 trillion, according to CoinMarketCap. There are many available cryptocurrencies. However, the most popular ones include Bitcoin, Ethereum, Binance Coin and Dogecoin. Many believe cryptocurrency will be a main currency in the future, and they’re opting to buy it now. They also like the fact that central banks are not involved in the process, so they can’t interfere with its value.

In addition, NFTs or non-fungible tokens, are also gaining in popularity. Each token is one of a kind and they’re also supported by blockchain technology. They can be anything digital, such as artwork or music files. NFTs are currently being used primarily as a way to buy and sell digital art. An artist could sell their original digital artwork to a buyer. The buyer is the owner of the exclusive original, but the artist might retain proprietary rights to feature the artwork or make copies of it. The popularity of NFTs is centered around the social value of fine art collecting in the digital space.

Here are three reasons to have an estate plan, if you buy bitcoin:

  1. No probate. Even if your loved ones knew you were using cryptocurrency, and even if they knew where you stored your password, that wouldn’t be enough for them to get access to it. Without proper estate planning, your cryptocurrency assets may be put through a lengthy and expensive probate process.
  2. Blockchain technology. You must have a private key to access each of your assets. It’s usually a long passcode. A comprehensive estate plan that includes this can help you have peace of mind knowing that your investments can be passed on to loved ones’ if anything were to happen to you unexpectedly.
  3. Again, central banks don’t play any part in the process, and it’s secure because its processing and recording are spread across many different computers. However, there’s no governing body overseeing the affairs of cryptocurrency.

Using cryptocurrency in your estate planning could have benefits and consequences. Speak with your estate planning attorney to make sure you have a full grasp on how it works.

If you would like to read more about cryptocurrency and other digital assets, please visit our previous posts. 

Reference: Forbes (July 21, 2021) “Cryptocurrency And Estate Planning: What Digital Investors Should Know”

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Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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