How do I incorporate Cryptocurrency into my Estate Plan?
Cryptocurrency is quickly becoming an area of concern in estate planning. What used to be a fringe topic is steadily approaching mass adoption (albeit in very limited ways). In a Nasdaq survey of 500 financial advisors, 86% said they plan to increase their client holdings of crypto during the next 12 months. Other major custodians, like Fidelity, are making big moves in anticipation of Bitcoin and Ether (among others) becoming mainstream alternatives that investors want to have easy access to.
Why is cryptocurrency a potential estate planning nightmare?
For the time being, cryptocurrencies are in the wild west phase of development and regulatory guidance is struggling to keep up. Therein lies the challenge from an estate planning perspective - because without guidance your cryptocurrency could end up limbo.
In other words, if you have a self-custody wallet and are acting as your own bank with respect to your cryptocurrencies, then there is virtually no practical recourse if your private key / password is lost or stolen.
For example, at the moment, the person with the password / private key is the “owner.” So, until there is some type of social recovery mechanism built in (or until there is additional regulation by the government on this), if someone steals your password to an otherwise anonymous wallet (as many are), then the thief has arguably become the owner simply because he/she knows your private key - it’s absolutely terrifying.
Many other horror stories have surfaced over the years - for example, Stefan Thomas made headlines after he lost his Bitcoin password and effectively made $220 million worth of Bitcoin inaccessible (can you imagine losing $220 million dollars because you forgot your bank login?).
What is an easy way to hold and store cryptocurrency?
The good news is that there are companies like Coinbase, FTX, and Crypto.com that make the process more approachable, but from my perspective (and very limited experience on the topic), it seems like Coinbase is the only one that is US-based and attempting to answer our concerns from an estate planning point of view. However, if you visit the website, you’ll notice that they specifically say:
“It's not currently possible to name a beneficiary directly within your Coinbase account, rather, in the event of your death, we would follow our standard ownership transfer procedures described above [via Will authorization].”
So, if you can’t name a beneficiary on the account, and you can’t open an account in the name of your trust (although there may be some debate on this), then you are stuck with using your Will to appoint a personal representative (what we call the “executor” in Massachusetts) to reach out to Coinbase to access your account and just hope they they will take it from there.
How to create an estate plan for your cryptocurrency:
Update your Will. Make sure your Will references digital assets and authorizes your personal representative (executor) to access such accounts. Remember, as of right now, it seems like your Will is the only way you can give someone the authority to speak with a custodian like Coinbase on your behalf (hopefully this will improve in the near future).
Make an inventory. Keep a full list of your cryptocurrency and the location / access points for such digital assets.
Leave breadcrumbs - unlike traditional accounts that have regulated and well-tested account recovery options available for heirs and successor trustees / executors, you’ll need to approach cryptocurrencies similar to how you would approach leaving a map for digital buried treasure
App. Consider using a cloud based app that stores your important digital keys and account information. That cloud based solution will likely require some type of two-step authentication - so make sure your trusted person has access to your smartphone (and a way to discover its passcode) as well.
Google. Google has a feature that lets you create one-time password keys that you could put in a home safe or safe deposit box - you could then have the digital account access information in a google doc
Safe Deposit Box. In the alternative, you could simply put your private digital keys in written form or on a flash drive that is stored in a safe deposit box (the more I think about it, the more comfortable I am with this option over anything else - but that’s not saying much).
Provide crypto tutorial. Although you may be fluent in crypto, there’s a good chance that your executor has no idea what to do even if he or she has all your account information. It’s helpful to provide clear instruction on how to properly access and transfer your cryptocurrency. Once again, there is where it is helpful to have a platform like coinbase acting as custodian, so they can provide that guidance as well.
It’s my hope that platforms like Ethereum will create social recovery options that provide heirs more practical solutions to tracking down and accessing your cryptocurrency if stored in self-custody wallets - until then, try to stay alive.
Interested in discussing your own estate planning? Give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.
I’m always happy to help,
Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
477 Main Street
Stoneham, MA 02180
