Cryptocurrency and Estate Planning
Technology changes fast. As technology changes, so does the way we handle and interact with our money. In recent days the most obvious way this has manifested is the spread of cryptocurrency. Don’t make the mistake of thinking crypto assets are the same as any other financial asset. Any money you hold in cryptocurrencies may become completely unusable if you fail to plan for them. These currencies can be a major source of income and store a great deal of wealth. How can you ensure your cryptocurrencies, noncurrency tokens, or NFTs can pass to your loved ones?
Cryptocurrency is one of the fastest-growing fields of technology. It is a method of tracking and processing transactions that is very secure. Because this new digital frontier is so new, you shouldn’t think of these assets as being “on your computer.” Treating cryptocurrency or other blockchain assets like other assets is a recipe for disaster. Many traditional estate planning strategies are useless here. New techniques for handling digital assets are being developed that make the process easier.
Are Cryptocurrencies Compatible with Estate Planning?
For many, the appeal of cryptocurrency is the concept of “decentralization,” that is – Giving the user control of their assets. However, handing over access to those assets can seem to run a bit counter to the idea of self-sovereignty. Be that as it may, you notice how fragile these assets can be when you begin planning for their fate after your death. If you were to pass away suddenly, that money could vanish forever if nobody knows how to access it. If nobody knows it’s there, that money is gone from the economy and your estate.
How to Protect Crypto-Assets
Individuals access crypto-assets through a ” Wallet ” program on their phone or computer. They access the “share” of assets through a private key. These are long sequences of letters and numbers and serve a bit like a bank account and routing number all in one. Sometimes, some services offer passphrases that can restore access to this key if lost. Unfortunately, private keys are attractive targets of theft and fraud, as anybody with the key can buy, sell, and trade the assets.
How to Include Cryptocurrencies in your Estate Plan
A will is often a great way to pass on material assets, but these public court transfers aren’t as secure as they could be. The exact way to protect these assets depends on how many are owned. For example, small amounts of cryptocurrency can be left to trust or left in a letter to a beneficiary.
The most important thing is that whoever you intend to receive your cryptocurrency needs a few things. First, they need the private key and any other identifying information you use to access the exchange. This money could be locked forever without login credentials and any needed two-factor authentication protocols. Sharing the seed phrase and private keys with somebody you trust is an option… But more secure is to break up your seed phrase and private keys, so no one party has access to your wallet. A multi-signature wallet may be easier to transfer, and a dead man’s switch app can transfer assets automatically without involving the estate.
One route we’d recommend is creating a trust and then transferring ownership of the asset to that trust. You can then designate who you wish to serve as trustee. Trusts require extensive documentation to prove the security of the asset, and a professional will know what you need. Dowd Law can help you figure out the best move for your assets.