Estate planning has always been a complex process, but with the rise of digital currencies, it has become even more intricate. In the past, investors could create a will, store physical assets like stock certificates in a safe deposit box, and expect a relatively smooth transfer to their heirs.
Today, new laws and procedures are necessary to ensure that digital assets are safely passed on when the time comes.
This article will delve into the key aspects of estate planning with digital assets. While some rules remain unchanged, there are several new considerations that investors may not be aware of.
Knowledge and Access are Critical
One of the most important factors in estate planning with cryptocurrencies is ensuring that the executor of your estate knows what assets you own and how to access them. A Forbes report highlights that this is often the most difficult part of the process.
Cryptocurrency investors tend to be cautious with how they store their digital keys and access codes, which are required to access their digital wallets. While it's understandable to be protective of these passwords, being overly secretive can lead to disastrous consequences—if the access code is lost, there may be no way to recover it, potentially locking away a wallet full of assets permanently.
Pam Morgan, a crypto asset inheritance planning expert, recommends using a simple and traditional method: “I’m a big fan of paper and pen” for documenting cryptocurrency keys and access details.
Morgan emphasizes that it's vital to clearly communicate the types of assets you have, where the keys are stored, and the security measures you've implemented, such as PINs, passphrases, or multisignature setups.
Legal Considerations
Even if you've made the access process clear to your heirs, failing to address the legal side of things can lead to significant challenges. Estate planning isn't just about technical accessibility—it's also about understanding the legal implications.
Without proper legal action, your heirs may face lengthy and costly legal battles. As Morgan notes, “without [crypto] keys, a court order is impotent.”
Morgan suggests keeping at least two copies of asset records and storing them in separate locations. For active cryptocurrency investors, these lists should be updated frequently—possibly once a week. On the other hand, Michael Goldberg, a Chicago-based attorney specializing in crypto estate planning, advises less frequent updates for investors who are less active.
He recommends creating and revising a list of assets once a year for those with a diverse but less frequently traded portfolio.
From a legal perspective, most states have recently passed laws allowing executors to handle digital assets similarly to traditional assets. This helps prevent executors from rushing to sell cryptocurrency assets hastily, as they might otherwise feel pressure to liquidate quickly—especially if the market fluctuates.
However, while the legal framework is adapting to cryptocurrency, there is still progress to be made. Tamara Curry, President of the National College of Probate Judges, explains that the courts will need more education on cryptocurrencies as they handle increasing cases involving digital assets.
“Judges are going to have to be educated and made aware of what to look for when these assets come before them,” Curry said.
In conclusion, estate planning with cryptocurrencies requires careful attention to both technical and legal factors. By taking the right steps to ensure proper documentation, access, and understanding of legal frameworks, investors can ensure a smoother transfer of their digital assets to the next generation.
