How to Handle Cryptocurrency in a Will
The growing popularity of cryptocurrencies has prompted estate planning professionals to adjust their practices, as digital assets are now regularly inherited through wills, trusts, and estates. Experts warn of risks including lost or misappropriated assets when cryptocurrency is not properly incorporated into estate plans.
Key Advantages of Cryptocurrency in Estate Planning
Unlike traditional banking institutions that require executors to present original death certificates and other documentation, cryptocurrency transfers only require access credentials. This streamlined process can simplify certain aspects of asset transfer if all parties understand how digital currencies function.
Understanding Digital Wallets and Passcodes
Cryptocurrency is accessed through digital wallets protected by complex passcodes – lengthy strings of numbers and letters. These 64-digit keys are essential for accessing accounts. However, this system presents significant vulnerabilities: if a key is lost, recovery is impossible, and executors must know both where the physical or digital key is stored and how to access it.
The Vulnerability Challenge
Many people naturally guard their passwords closely. However, cryptocurrency ownership creates special circumstances requiring different practices. If an executor changes during someone’s lifetime after having received access information, there is no guarantee the former executor will not retain access to accounts.
Protecting Digital Assets Through Cold Storage
“Cold storage” provides a security solution by storing account passcodes on USB drives or similar devices. This approach allows information sharing without requiring fiduciaries to learn the actual passcode, enabling secure transfers between executors without exposing sensitive credentials.
Regulatory Landscape
Congress has introduced multiple cryptocurrency-related bills, and the IRS has issued guidance regarding taxation of digital currency transactions. Litigation concerning estates and cryptocurrency remains relatively new to courts, making advance planning crucial as digital asset usage and values continue expanding.
If you hold cryptocurrency or other digital assets, make sure they are accounted for in your estate plan. Contact The Stegall Law Firm to discuss how to properly protect and transfer your digital wealth.
