Cryptocurrencies are self-sovereign assets, meaning only their wallet owner has access to their crypto holdings. When an owner passes away unexpectedly, their dependents often lose out on an inheritance they would otherwise gain access to; to avoid this scenario investors should consider cryptocurrency estate planning so their dependents have access to their holdings even in case of an early death. For more information about how it operates click here.
If You Don’t Make Any Arrangements, What Happens To Your Crypto When You Die?
A crypto asset wallet requires a private key — typically, a 12-word seed phrase — in order to access it and your crypto assets. A private key must remain confidential; without it, accessing them becomes impossible.
If you fail to arrange for your loved ones to inherit any digital assets in your private wallet (e.g., hardware wallet), after your death they could be permanently lost.
If something were to happen to you and leave behind financial challenges for your loved ones, their access to your digital assets would likely become inaccessible and they would be left unable to compensate for what would surely be an empty financial space in their lives.
Your beneficiaries can access any cryptocurrency assets stored in a crypto exchange account by providing necessary documentation. Crypto exchange accounts act as custodians, so they will keep hold of customers’ private keys safely.
To avoid your digital assets being lost posthumously or burdening the beneficiaries with a lengthy recovery process after death, crypto estate planning should be part of your plans.
What Is Crypto Estate Planning?
By engaging in crypto estate planning, an individual can ensure the transfer and management of their digital assets after death.
Investors may not yet appreciate that planning for the transfer of cryptocurrency assets is necessary due to its relative novelty. But as cryptocurrency prices surge and investors’ cryptocurrency holdings increase in tandem with them, awareness of this planning requirement grows rapidly. On September 6, 2022 alone, over 2,000 addresses held over 1,000 BTC; an additional 571,203 addresses held between 1-10 BTC.
Hire both a lawyer and tax advisor for assistance when planning for cryptocurrency inheritance to minimize tax implications and protect future beneficiaries under the law.
Crypto real estate planning does not need to involve specialists. Your primary concern should be protecting your assets and making sure your loved ones can easily access them.
To Make Sure Your Digital Asset Inheritance Will Be Accessible To Your Dependants, Follow These Steps.
Your Digital Asset Inheritance Will Become Accessible to Your Dependants
Keep Track Of All The Required Information.
If you want your descendants to inherit cryptocurrency holdings from you, it’s wise to document all relevant details about their holdings in writing. Otherwise, they might never know about these assets unless told beforehand.
Start with where. State the amount and location of crypto assets (if desired). For instance, if they’re on an exchange, such as Bitfinex, you might say something like: “I hold 5 bitcoins and 200 litecoins on Bitfinex; non-custodial wallets hold your ETH/BNB; my backups are safe in my bedroom safe.”
Provide step-by-step instructions for using the Ledger hardware wallet – an analogous to a USB drive with all of your assets contained within. It contains the private keys for both wallets.
As part of your will, when creating your will you can provide instructions regarding the management of cryptocurrencies. For instance, you could instruct your family to sell off a certain percentage before keeping what’s left – store this will in an easily accessible place after your death so they can find it and continue managing their investment accordingly.
As well as recording your 12-word recovery seed phrase on paper wallet, you can also include PINs and passwords for both exchange and private wallets. Place this document into an envelope and store it safely somewhere you trust; such as your bedroom safe or security deposit box accessible only by loved ones.
Make sure that when opening a deposit box with an excellent security provider, access controls are an absolute necessity.
Get Assitance From a Third Party
Legal professionals offer another method for cryptocurrency property planning. Together with you they create a will that outlines who gets what and add your assets into it. But be wary that having such an arrangement might have tax repercussions and that your seed phrase could become accessible to them.
To prevent the latter, it is wise to store your crypto assets in a multi-signature configuration – this way no lawyer can access or steal your assets if this option is chosen. Make sure that these issues are carefully considered prior to engaging a lawyer, and consider installing such an infrastructure if required.
Investors may wish to utilize crypto inheritance firms such as Safe Haven and Casa Covenant; however, before making their choice. Doing your homework will ensure the service provided meets your individual circumstances as well as being comfortable entrusting them with data about digital assets.