Understanding cryptocurrency (“crypto” for short) as an asset is central to planning for its succession. Crypto is similar to a “bearer” instrument, meaning whoever possesses the asset owns the asset (much like the coupon holder of a bearer bond). Since crypto is not linked to an owner’s name, extra planning steps must be taken to avoid its loss in the transition to your heirs.
The Challenge of Estate Planning With Cryptocurrency
Crypto is a digital currency, meaning it does not exist in a physical form. This makes it vulnerable to hacking or other technological compromise, which could cause the loss of your investment.
An investor’s crypto is stored on a digital “wallet,” located either on an online crypto exchange (Coinbase, Monero, Poloniex, etc.) or on a physical digital storage device (such as an external hard drive for a computer). Wallets are protected by complex digital encryption and can only be accessed with a “public key” and the owner’s “private key.” As an analogy, the public key is like an account number at a financial institution and the private key is like the PIN associated with such an account.
Importantly, none of the crypto investor’s personal information is associated with the wallet (even if held on an exchange), so if the wallet is hacked or damaged, or the private key is lost, little can be done to recover the currency.
Because of a wallet’s vulnerability to being hacked and its accessibility to anyone who learns the private key, crypto investors safeguard the public and private keys associated with their wallets, often choosing not to disclose the wallet’s existence even to those closest to them.
This poses a problem if an investor dies without taking steps to inform beneficiaries of the existence of these crypto assets. If beneficiaries are not aware of the wallet’s existence or do not have the wallet’s private key, access to the currency could be lost forever.
Safeguard Cryptocurrency and Proactively Plan for Its Succession
As crypto is still a relatively new investment option, crypto investors should ensure that their estate planners have an understanding of such a complex asset. Planning for crypto succession requires not only the estate plan prepared by your attorney, but also a related plan you have prepared allowing someone to locate your wallet information and access your crypto. Your attorney can assist you in establishing the foundation for a secure discovery plan that works with your estate plan.
Key Considerations When Preparing a Crypto Succession Plan
Being proactive in planning for the succession of your crypto assets will help keep them from being appropriated by the wrong person or lost in cyberspace.
