Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.
One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.
The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.
While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.
People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.
People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.
How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.
Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.
In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.
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: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”