Securing Cryptocurrency in Your Estate

Many people celebrate the usefulness of cryptocurrency with its decentralized and private functions. However, those same features can cause frustration when planning your estate or administering the estate of a loved one. It can be quite confusing to determine how to access crypto when someone passes away or when trying to leave it to a loved one. 

Cryptocurrency transfer is surprisingly similar to the transfer of other types of personal property. Crypto assets can be placed into a will, held in a trust, or given to loved ones through intestacy. Where cryptocurrency asset transfer differs is the dependency upon a private key to access, transfer, and withdraw it. 

The requirement of a private key and a unique account location can create problems when heirs expect to receive their inheritance. In the worst case, cryptocurrencies can be lost forever with the stored up value completely inaccessible. Fortunately, proactive planning ensures that the value of your cryptocurrency is not lost.

What Happens to Crypto Assets If There Is No Plan?

In general, you should expect cryptocurrencies to be subject to the same state probate procedures and rules as any other property you own.

For Smaller Estates

If people have property but die without a will (also called intestate), under certain circumstances the estate doesn’t have to go through the complete probation process. All states offer simple, quick processes for estates that don’t have houses or other property to pass on. 

For low-value estates, the small estate process can be as easy as signing an affidavit, so it’s worth looking into. Each state has its own financial threshold for small estates, but some places permit small estate proceedings for estates up to $150,000.

The recipient or other person holding cryptocurrency and other assets may be required to submit small estate documents. In some cases, the submission will be to a crypto-account agent or the crypto exchange if they need asset-level approval to continue with the transfer.

For Larger Estates and Estates with Physical Property

Larger properties, such as those with real estate, often have to go through a probationary period to appoint an executor to divide the property. The court issued administrative letters to provide proof of the personal representative’s authority to act for the estate.

From there, the court will order the executor, as administrator, to follow the laws of intestacy in collecting and subsequently distributing the estate.

When dealing with cryptocurrencies, it is possible that no one will present official letters of administration to the official. This often happens when cryptocurrency owners use cold wallets – offline, physical devices to store their cryptocurrencies. Unless there is a cold wallet in something like a safe deposit box, no other person or entity is involved.

Intestacy and Laws Governing Inheritance

If someone dies and there is no will, the court requires that the personal representative abides by the laws of intestacy when distributing property, including cryptocurrency. If there is no will, inheritance distribution first goes to surviving spouses then the children.

If there are no children, then ancestors are next on the list. In other words, parents become the next to inherit, then siblings. If there are no surviving parents or siblings, the grandparents’ generation is then next to inherit.

Second and third marriages and deaths of heirs complicate the process of applying intestacy laws. For families who have one of these situations, further research into which members receive what shares of the estate will help you understand what can happen when there is no will. You may also want to consult a lawyer who can apply intestacy laws to your particular family structure. 

Taking Possession of Crypto Assets

If the owner of cryptocurrency dies without a will or estate plan, it may be difficult for those who remain to find and control the cryptocurrency. They often have no idea that their loved one even held virtual currency.

To prevent cryptocurrency from disappearing, owners can include it in their wills, trusts, and estate plans. This draws attention to the fact that a crypto wallet exists and gives instructions on how to obtain it.

Make a Plan for Your Crypto

The inclusion of cryptocurrency in your will and estate plans makes it easier for your personal representative to find your accounts and pass them on to your heirs. And most importantly, it increases the chances of your digital assets being available to your loved ones so they can enjoy and utilize what you’ve stored up for them. There are many ways to forward your cryptocurrencies.

Name a Crypto Beneficiary

Naming a payable-on-death recipient for an account allows the beneficiary to transfer it if the owner dies. Most of the time, you’ll only need a death certificate. Designating a beneficiary also has the additional advantage of preventing the asset from going through probate.

It’s a quick and free way to make sure the right person ends up with your cryptocurrency. Unfortunately, most users find that their preferred crypto brokers lack the ability to name recipients on their crypto accounts, so the beneficiary designation is not used much for crypto.

Place Crypto In Your Will

Many cryptocurrency owners choose to place their virtual currency in a will, where it is considered personal property. Placing crypto in a will gives your personal representative instructions regarding who should inherit it. It also prevents family members from forgetting or overlooking your cryptocurrency wallet.

Your personal representative will need the wallet information to access the account. Keep in mind that a will may not in itself be the best place to record access data, as these are usually public documents when brought in court and wallet keys are all that is required to access your crypto.

Place Crypto In a Trust

Trusts are another popular estate planning tool that can be established during the life of the property owner or upon death when designated in their will.

Many people craft a trust while still living. This is called a living trust or an inter vivos trust. The settler can be both the trustee and the beneficiary of the trust, so there is full control over the transactions and they can terminate the trust at any time.

The settlor appoints a successor trustee who will take over at the time of their death or incapacity. By placing assets in the trust, the settlor makes rules regarding the distribution and maintenance of the assets that will be followed even after their death. Placing assets in a trust is another way of avoiding probate and keeping those assets private.

Putting cryptocurrency into a trust ensures that the trusted successor knows that the crypto exists. Providing information on how to access the digital currency, however, is an extra and critical step.

Create a Plan for Accessing Crypto

Whatever method you use to transfer your cryptocurrency, merely earmarking it for transfer won’t be enough unless you pass along your private key and account location. One blockchain analysis company estimates that up to 20 percent of Bitcoin is lost forever, whether due to unavailable private keys, lost wallets, or the death of owners. 

Preventing your account from becoming a statistic can be as easy as writing instructions and keeping them in a safe place. A growing number of companies are also starting to offer technology solutions for the secure transmission of crypto-account details after death. 

How Can a Beneficiary or Personal Representative Access a Loved One’s Cryptocurrency When They Die?

Accessing a crypto wallet should be as easy as logging on to a computer with the correct address and key. Unfortunately, if no plan is set up, the process will be far from this simple.

Learning About Crypto Assets

For many beneficiaries, discovering a loved one’s crypto assets is the hardest part. The decentralized nature of cryptocurrency means that there is no large database or registry to search. While some crypto accounts are on an online exchange, others are stored on offline devices, which can be anywhere from a secure safe to an attic or closet.

Cryptocurrency researchers can try to help you find lost cryptocurrencies and might even help you crack the private key. The private key is the long, alphanumeric password needed to withdraw assets from the cryptocurrency account. Unfortunately, without it, the contents of the account remain unavailable, even for living owners.

Possessing Crypto Assets

Access to the asset itself depends entirely on the type of storage used by the owner for the account and the private key. 

Cryptocurrency stored in cold storage is easiest to obtain once you find it, because there is no third-party custodian. Cold storage wallets are physical devices that often resemble USB drives. 

However, most of the time a third party is involved, such as a crypto stock exchange, custodian, or online wallet provider. In such situations, the recipient or beneficiary may be required to present the small estate affidavit or letters from probate. 

Depending on the account set up, recipients will often receive inherited cryptocurrency without a court order, because anyone with a private key can access the account.

Accessing Crypto Assets

Inheritance laws are not written with respect to digital assets. As a result, 47 states have introduced the Revised Uniform Fiduciary  Access to Digital Assets Act (RUFADAA), which addresses changing estate and probate requirements. 

RUFADAA gives estate administrators and personal representatives the legal authority to access someone else’s digital assets. Prior to RUFADAA, some online account custodians did not allow access to accounts.

The act also sets out a hierarchy of documents that determines governance in the event of a conflict. Within RUFADAA, the provider’s online management system gains hierarchy over estate planning documents. Some custodians create a payable-on-death designation through their online management system. If this is the case, the crypto exchange or wallet payable-on-death designation that was established determines who inherits the cryptocurrency. 

Make a Crypto Asset Plan

Security features that make the cryptocurrency safe and attractive to users also present new challenges for inheritance. In many ways, it is the same as any other asset. It can go through all traditional probate and non-probate proceedings. Unfortunately, merely stating that your crypto should go to someone isn’t enough if they do not have access to it.

If you want your cryptocurrency to become part of your legacy, make sure to share access information with the beneficiary upon your death and keep it safe during your life. 


About the Author: Sherrie is a writer at JoinCake.com, an end-of-life planning website with free resources and information on how to estate plan and honor loved ones’ final wishes.

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