Cryptocurrency’s volatility hasn’t daunted investors, and money continues to pour into this asset class. As cryptocurrency becomes more mainstream and a larger portion of Americans’ wealth, it needs to be included in estate plans, according to a recent article from Kiplinger, “Is Your Cryptocurrency Safe?” How to Shield Digital Assets.” Can Estate Planning strategies protect cryptocurrency?
Implementing the right estate planning tools now can help protect your digital wealth from estate taxes, creditors and unforeseen events. Here are five strategies to discuss with your estate planning attorney:
Use asset protection trusts and LLCs. Using a Limited Liability Company to own your cryptocurrency and then placing it into a properly structured trust ensures that digital assets are off-limits to creditors, which could help preserve your wealth in case of litigation.
If you’re wealthy, you may attract litigation, justified or not. There are proactive steps you can take to reduce the incentive for someone to pursue a frivolous claim against you. Consult with your estate planning attorney about asset protection strategies to minimize the visibility of your cryptocurrency holdings.
Include cryptocurrency in your estate plan. Your will, trusts and other estate planning documents need to take into account the challenges of this relatively new asset class. Properly drafted, an estate plan can help prevent your heirs from being subject to excessive estate taxes and facilitate the transfer of digital wealth to your heirs.
Keep excellent records. The decentralized nature of crypto makes it impossible for anyone who isn’t knowledgeable about digital assets to track or trace transactions and accounts. This makes digital wealth vulnerable to loss, and there are numerous anecdotes of millions of dollars of cryptocurrency being lost forever due to inadequate record-keeping. You’ll want to keep detailed transaction histories and maintain information, including usernames, passwords, security question answers, access credentials, private keys and any two-factor authentication information. Don’t include this information in your will, as it becomes a public document when admitted to probate.
Securely store digital assets. Hardware wallets or online wallets are used to hold digital assets. However, they are not the only tools used to protect cryptocurrencies. You’ll want to have strong antivirus protection, anti-malware software, a robust firewall and regular security audits of your system. Like an estate plan, digital security is not a “set it and forget it” exercise. It is rather an asset that requires ongoing maintenance and updates.
Name a digital executor who will be able to manage your cryptocurrency. No matter how skilled your brother is with financial matters, if he’s a Luddite who shuns technology, you’ll need to appoint someone else as your digital executor. Identify a person whom you trust and who is comfortable navigating the world of bits and bytes, cold wallets and NFTs.
By working with an experienced estate planning attorney who is knowledgeable in estate planning, taxes and cryptocurrency, you can secure your investments, minimize estate taxes and maintain your holdings throughout your lifetime.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Kiplinger (March 21, 2025) “Is Your Cryptocurrency Safe? How to Shield Digital Assets.”
