Many people have made thousands, some even millions, with cryptocurrencies such as Bitcoin. Cryptocurrency may have lost some of its value due to recent scandals that are under government scrutiny, but it is here to stay. Even if you do not own this asset yourself, your children may, and you should know how to do estate planning with cryptocurrency so that you can pass it on to the next generation.
What Is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security. Traditional currency operates within governments and financial institutions, but cryptocurrencies operate on networks that are outside of government control. Cryptocurrency is stored in digital wallets, which you access through your private keys, or passwords. If you own one, you can access your digital wallet from anywhere in the world. This makes them convenient for users. But, this also means that if you were to die or become incapacitated, your loved ones may not be able to access your cryptocurrency holdings.
Key Considerations for Estate Planning with Cryptocurrency
1. Include Cryptocurrency in Your Will or Trust
If you own cryptocurrency, one of the most important steps in estate planning is to include it in your will or trust. Your will or trust should instruct your personal representative how to distribute your cryptocurrency when you die. This can mean designating specific beneficiaries to receive your cryptocurrency. You can also direct your personal representative to sell the cryptocurrency and distribute the proceeds to your heirs. Keep in mind that cryptocurrency is considered property, and that means it may be subject to estate taxes upon your death. Always consult with a tax professional to determine the best strategy for minimizing your estate taxes.
While you can use either a will or a trust for these purposes, a trust has some advantages. You can use a trust to manage and distribute your cryptocurrency holdings without having to go through probate. A trust can also provide added protection for your cryptocurrency assets. By placing your cryptocurrency holdings in a trust, you can ensure that your beneficiaries will have access to your digital assets, and you lower the risk of them being lost or stolen.
2. Provide Access to Your Private Keys or Passwords
For your loved ones to access your cryptocurrency holdings, they will need to have access to your private keys or passwords. It’s important to store this information in a secure location that can be easily accessed by your designated beneficiaries. You can do this in a number of ways, such as storing your private keys and passwords in physical storage devices, encrypted digital files, or specialized services that are designed for managing cryptocurrency estate planning. We suggest that you document them in your Estate Guide and Inventory and store it with the rest of your estate planning documents. Regardless of the option you choose, be sure to tell your loved ones where your passwords are located and how to access them when necessary.
3. Review and Update Your Estate Plan Regularly
Finally, it is important to review and update your estate plan to ensure that it remains current and effective. This is particularly important when you own cryptocurrency, which is volatile and can fluctuate in value. Make sure that your loved ones have what they need to manage your cryptocurrency assets should you die or become incapacitated.
Estate Planning with Cryptocurrency Will Become More and More Common
Estate planning for cryptocurrency is important for anyone who holds digital assets, which will only become more and more prevalent as time goes on. By including cryptocurrency in your will or trust, providing access to private keys or passwords, and reviewing and updating your estate plan, you can prepare your loved ones to manage your cryptocurrency holdings in the event of your death or incapacitation.
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Disclaimer: The information you obtain in this post is not, nor is intended to be, legal advice. This blog shares general best practices when navigating Virginia or West Virginia law, but you should consult an attorney for advice regarding your individual situation.