Personal Representatives: How to Discover a Decedent's Cryptocurrencies for the Estate
A discussion of some common ways that cryptocurrency enthusiasts store their crypto digital assets and how you can find them.
Of the many duties of a personal representative involved in the administration of a decedent's estate, arguably the most important are securing the estate's assets and performing an inventory of what the decedent owned at the time of death. Whatever assets are found are used to pay off the decedent's creditors and distributed according to the decedent's desires or by statute, so it is important that the personal representative performs a thorough investigation. One increasingly important asset class to look out for are digital assets, which can be easily overlooked.
For the uninitiated, cryptocurrencies (a sub-category of blockchain-based digital property known as "digital assets") are an enigma. Most people have heard about Bitcoin, Ethereum, or Ripple's XRP, but a large portion of the population still has no idea what cryptocurrencies are, what they do, and why they are so valuable. Thankfully, it is not necessary to have a PhD in computer science to be able to locate, gather, and distribute crypto, but it will take some basic computer skills, access to a decedent's email accounts and phone(s), and some understanding of fundamental terms and crypto concepts.
If you suspect a decedent owned digital assets, there are usually two main places where cryptocurrency enthusiasts store their assets: "cold" wallets and "hot" wallets. Whether a wallet is hot or cold depends on inherent risk of a security breach, which typically corresponds to how much access to the internet a wallet has. Cold wallets provide offline storage with little or no access to the internet during times of storage. Hot wallets provide storage online on a web-based application. Hot wallets rely heavily on their internal security protocols to keep assets safe, so there is always a risk that an intrepid hacker can somehow exploit a security flaw or outsmart the developer of a hot wallet.
Banks provide a useful comparison. Think of cold wallets as a safety deposit box where it is very difficult for anyone to access the contents of that box without having physical access to the safety deposit box key. Hot wallets are like checking accounts at a bank. Keep these comparisons in mind when considering how a cryptocurrency enthusiast might have tried to secure or store their assets.
Oftentimes close friends and families know that the decedent invested in crypto because the decedent couldn't stop talking about their investments (it's an exciting market). A search through the decedent's social media accounts--Twitter or Discord in particular--may provide some insight into which digital assets were owned, if any. It will be helpful to make a list of any cryptocurrency that the decedent posted about frequently or made positive references to. More than likely those assets are the ones that the decedent owned, but it may not be a comprehensive list. It may even be useful to make a list of the cryptocurrencies that a decedent posted negatively about; it is a somewhat notable tactic in the crypto community for individuals to attempt to spread fear, uncertainty, doubt ("F.U.D."), and disinformation in order to attempt to short the market and make a profit.
These days it is very likely that the decedent used a web-based "cryptocurrency exchange" to convert fiat money (e.g. USD) to a cryptocurrency. Accessing a decedent's exchange account will provide a wealth of information concerning the decedent's transaction history and potential holdings. Many people decide to hold their digital assets with cryptocurrency exchanges in much the same way people can leave money in their TD Ameritrade account, so it is always helpful to identify which exchanges the decedent used. It may be necessary to dig through the decedent's emails, text messages, browser histories, social media posts, safes, safety deposit boxes, storage units, and other hiding spots to identify exchanges.
Assuming the decedent did not delete his or her email communications regularly, you will possibly be able to find transaction confirmation emails from exchanges alerting you to which exchanges the decedent used to conduct trades. Many exchanges require participants to utilize 2FA (2-factor authentication) to login to an account, which means that an email or text message is sent to the decedent, which can help identify which exchanges were used. Thus, looking through a decedent's text messages for confirmation codes may also provide some insight to identify the decedent's exchanges.
Further, exchanges often require one use an "authenticator" application that is linked to the account, which is an application on a known device that periodically generates a random numerical code that is synced with an exchange account. The code is used to ensure that whoever is attempting to gain access to the exchange account is doing so from a specific device that was previously authorized. Each exchange a decedent uses that makes use of an authenticator application requires the decedent to have a separate authenticating code, so in practicality the decedent will likely have labeled the authenticating codes within the app to correspond with the exchanges he or she used (don't worry--if you've never used an authenticator, once you find the app the decedent used it will make more sense once you see it). The authentication apps are usually found on the decedent's phone, and a commonly used authentication app is called the "Google Authenticator."
A recent development in crypto is the rise of "DeFi" (shorthand for "Decentralized Finance") in which certain cryptocurrencies with "smart contract" capabilities are "staked" in liquidity pools in exchange for various rewards. Think of this as a money market account of sorts. If a decedent was involved in DeFi, it is likely that he or she is accruing significant amounts of interest on any digital assets that they staked. DeFi is usually conducted via any number of applications, so it would be wise to research all of the applications on a decedent's phone or computer you do not recognize to discern whether any were cryptocurrency wallets with DeFi capabilities.
Additionally, certain well-known applications, like Cash App, allow users to buy Bitcoin directly for a fee instead of having to go through an exchange. Bitcoin purchased in that way will be stored on a Cash App hot wallet until the user sells or transfers the Bitcoin. Make sure you investigate any such application the decedent had that may have the ability to purchase digital assets.
Some folks who may not want to mess around with the inherent risks of owning crypto have turned to the popular trading app known as "Robinhood," which offers a form of cryptocurrency trading of certain limited assets. Unlike Cash App or cryptocurrency exchanges, however, Robinhood does not presently allow its users to "own" the crypto; rather, Robinhood "owns" the crypto and keeps track of your interest in each asset. Thus, you cannot transfer any digital assets out of Robinhood--you can only sell.
Security-minded crypto enthusiasts tend to create security plans for the digital assets that incorporate offline storage. This will likely mean the use of special hardware for storing digital assets and storage in safety deposit boxes at major banks, safes, storage units, or in any number of hiding spots known to the decedent. Look for objects that have the appearance of a USB drive stored in places where the decedent clearly desired limited access. Familiarize yourself with the major manufacturers of "hardware wallets" (like Ledger or Trezor) and observe what their products look like so you can be on the lookout. These hardware wallets will have corresponding applications that may be installed on a computer or phone. If you see any of those applications, you can place a safe bet that the decedent owned digital assets.
Nearly all crypto wallets, whether web-based or incorporating hardware, have a method of recovering access to the wallet in the event one forgets a password or loses the physical hardware. Recovery requires the owner of the wallet to store and keep secret an ordered set of 12, 18, or 24 words (known as a "Seed Phrase") that generate a particular unique code to regain access to an account. Therefore, you may find a numbered set of words somewhere in the decedent's things (likely in a secure location). Some crypto enthusiasts go so far as to chisel the Seed Phrase in a chunk of metal so that it cannot be lost in the event of fire! If you find such a list, you must do everything possible to ensure nobody else discovers, copies, records, or photographs the Seed Phrase; whoever has access to the Seed Phrase can access and transfer the crypto held in that particular wallet.
If the decedent did not have a Digital Asset Estate Plan explaining how to access their crypto, it is not altogether unlikely that you may even find a "treasure map" of sorts among the decedent's possessions with rudimentary directions for how to access their assets or where their seed phrases are hidden. It all depends on how much trouble the decedent went to secure and store their digital belongings.
Of course, as blockchain becomes an increasingly inseparable part of our lives, new innovations may require you to expand your search methods to ensure you are gathering as many of the decedent's assets as you can. If you are a personal representative looking for assistance in administering an estate consisting largely of digital assets, please feel free to contact me at firstname.lastname@example.org today to set up a consultation.