Death: One Reason Why Crypto Enthusiasts Need to Consider Having a Digital Asset Estate Plan
What happens to your crypto when you die, and what can you to do protect your loved ones' interests?
The cryptocurrency industry is still very much a digital Wild West, and like the bandits and highwaymen of the days of old, hackers and scammers lurk in the shadows waiting to take advantage of unsuspecting folk. As a result, security-focused cryptocurrency enthusiasts have developed extreme and innovative security measures to protect their digital assets, often using secure "cold wallets" that prevent hackers from stealing crypto by storing the private master access to the wallets (i.e. the "private keys") on specialized hardware without access to the internet. It is rote crypto-common knowledge that whoever has access to a wallet's private keys is the de facto owner of the crypto held therein. While a good security plan effectively executed makes a person's crypto completely inaccessible by any unauthorized individual (including government agencies), these plans usually require that only one person has access to the private keys and their backups. And now a new problem arises: what happens to the cryptocurrency when that person dies?
Well, if the deceased crypto owner did not have a plan in place for allowing another person access to their digital assets at death, the assets quite literally die with the deceased. Not even the FBI or the NSA can recover crypto that is locked away in a wallet whose owner has lost private keys. You can find several nauseating stories online of people who have millions of dollars worth of Bitcoin locked forever because the owner of the wallet misplaced or lost their private keys.
For many people involved in the nascent cryptocurrency industry, investment in digital assets is not just a hobby--rather, the goal is to take advantage of early investment in a revolutionary technology to generate enormous amounts of wealth for themselves and their families. The unfortunate reality is that anyone can die under unexpected circumstances. And what good is owning enough crypto to buy a "moon lambo" if you die before you can use it and access to your private keys is lost? Wouldn't you want your loved ones to be able to take advantage of the fruits of your investments?
The solution is to create a Digital Asset Estate Plan, either as a standalone plan dealing only with your digital assets or as one smaller part of your larger classic estate plan. A Digital Asset Estate Plan can be structured much like a classic estate plan, but it will likely contain a number of unusual provisions meant to protect the security of the various wallet private keys while simultaneously providing just enough information to allow a trustee, personal representative, or beneficiary to locate the digital assets.
For an effective Digital Asset Estate Plan it is imperative that detailed instructions written in laymen's terms are provided on how exactly to access the decedent's crypto and how to recover the wallet's private keys in the event any hardware was lost or damaged. Depending on the decedent's situation, the Digital Asset Estate Plan may call for the designated trustee to obtain access to a safety deposit box or safe to collect the cold wallet private key backups. For the uninitiated, navigating crypto concepts and vernacular can be overwhelming, so it may be beneficial to include a number of definitions or explanations of fundamental concepts so that your loved ones do not need to seek the advice or assistance of third-parties who may turn out to be opportunistic scammers. Particularly important is the provision of security tips to prevent your loved ones from falling victim to thieves.
There are numerous other considerations that could be incorporated into your Digital Asset Estate Plan, such as tax implications or facilitating transfers of assets on death in trusted "hot" wallets. If you own crypto and are considering how you can incorporate a Digital Asset Estate Plan into your current estate plan, do not hesitate to contact me today to schedule a consultation.