What Happens To Your Crypto Assets When You Pass Away?
The popularity of cryptocurrency has exploded since the start of the decade, with its market cap peaking at $3 trillion in 2021. For those who have invested in cryptocurrency, this novel asset can represent a confusing but potentially exciting new world, where government regulation and industry best practices are either nonexistent or struggling to keep up. But even if crypto is a novel investment for you, it’s important to think long-term — and that includes preparing for what should happen to your crypto when you pass away.
Since crypto assets are decentralized, which means it is not managed by centralized authority like banks, it’s extremely important that you include them in your estate plan, and choose someone you trust to execute that plan. Otherwise, it may be impossible for your beneficiaries to secure access to them when you pass away.
What happens when you pass away?
OK, so if crypto is a digital asset and your heirs can inherit it just like the rest of your estate, everything’s taken care of and set, right? Unfortunately it’s not that straightforward with cryptocurrencies.
Unlike regular assets — like a bank account or a house — there is very little, if any, record of you owning your crypto. That comes as a natural consequence of the security and anonymity cryptocurrencies introduced. Unless you’re using a hot wallet or an exchange (which we don’t recommend), you’re the only person who knows how much crypto you have and where it’s stored. Even if you keep it on the exchange — those organizations are far from being as regulated as normal financial institutions, which means less legally-binding ways for them to search for your heirs.
So while your crypto assets can definitely be inherited by your beneficiaries, you first need to make sure they know where to find and how to access them. Otherwise you run the risk of your crypto being lost forever — as is the case with billions of dollars worth of cryptocurrencies to date.
How to prevent losing your crypto forever?
Now that we’ve established cryptocurrencies unfortunately bring the risk of being lost forever if your beneficiaries don’t know where to find and how to access them, let’s explore some ways to prevent that from happening:
- Move your crypto away from any exchanges or hot wallets
The first thing that you should do is to remove your cryptocurrency from exchanges and/or hot wallets. Leaving your assets there makes them extremely susceptible to attacks — if someone hacks the exchange, they’ll also gain access to your crypto without you being able to restore it. Using a cold wallet (or more than one) is an idea worth exploring if you are serious about securing your assets.
- Include your crypto assets in your will
This is the next and obvious step. Even if you don’t have a will, your assets will be inherited by your next of kin; but that removes a great deal of flexibility from you (being able to name your beneficiaries for instance) and is not the case with crypto, as it’s very likely for you to be the only person that knows about it. Including cryptocurrencies in your will adds a form of security and is a solid step towards ensuring your legacy.
- Use a digital inheritance service
Wills are a crucial step when planning your estate, but they don’t offer that much flexibility. Each time you need to make a change (include another asset or beneficiary, alter your wishes for another, etc.), you need to observe the legal necessities involved. Digital inheritance services exist to bridge that gap; while they don’t replace the need for an actual will or estate plan, they do offer that much needed flexibility in those important matters. You can catalog your crypto and other assets and assign beneficiaries — all in an online and secure way — that gives you a much needed layer of protection and peace of mind.
- Inform your beneficiaries
Apart from using digital inheritance services and planning your estate, it never hurts to simply tell your loved ones of your assets. If you have people you love who you’d like to inherit your assets, crypto or other, simply notifying them of the presence of those assets will make a huge difference if they have to go through the extremely difficult experience of dealing with your loss and handling your estate.
How to leave cryptocurrency in your will?
1. Create a will to and power of attorney documents to outline who would handle your digital assets
The first piece of your emergency plan should be a will and power of attorney documents. Most crypto exchanges and digital asset platforms require a copy of a will or POA document before they will confirm that your assets exist and allow your executor to access them. Your will sets out who inherits your assets when you pass away, and who should take on key roles like a guardian for minor children and executor for distributing your estate. On the other hand, a power of attorney appoints someone to manage your assets while you’re alive but incapacitated due to illness or injury. These two documents are crucial to avoid having the court make decisions about your digital assets, which can cause delays and added costs for loved ones.
2. Create an up-to-date asset list that includes digital assets
An asset list is an important component of an emergency plan that compliments your will and power of attorney documents. Making a complete up-to-date list of assets and storing it with your will prevents any of your digital assets from being forgotten (since there is no central body that your loved ones can ask).
3. Make a plan to share passwords and grant access to your accounts
Your cryptocurrency is protected behind either a password to a crypto exchange or a private key. Without your password or key, your loved ones won’t be able to gain access to your cryptocurrency. Yet, not having a method of sharing passwords with a trusted friend or family member seems to be a common occurrence.
Even though the crypto landscape is evolving rapidly, having an estate plan is critical to protecting your crypto assets when you die. Because of the decentralized nature of crypto, the onus is on you to keep stock of your investments and communicate access instructions to your executor and beneficiaries in the event you pass away.
Having an up-to-date estate plan is important for everyone, but it can be especially critical for crypto owners who don’t want their loved ones to lose access to their crypto assets.