Cryptocurrencies pose special challenges for estate planning
This article looks at why cryptocurrencies present special challenges for estate planning purposes.
For those who have braved the tumultuous world of cryptocurrency investing, the last few months have been a roller coaster ride, to say the least. Last year the most popular cryptocurrency, Bitcoin, soared from just under $1000 in January to over $19,000 by December, only to then crash to below $7,000 and then rebound to, as of writing, close to $10,000. Cryptocurrencies have the potential to make people very rich or very poor in a short period of time. While their volatility makes predicting what they will be worth in the future nearly impossible, owners of cryptocurrency should still look to the future and consider the estate planning implications of cryptocurrencies.
Why cryptocurrencies are a different kind of asset
Cryptocurrencies present unique challenges for estate planning purposes. Just like any asset, a cryptocurrency can be left to one’s heirs in a will. While promising a cryptocurrency to one’s heirs sounds simple enough, problems can arise when it comes to physically distributing that property to those heirs.
As CNBC points out, secrecy is one of cryptocurrency’s advantages, but when it comes to estate planning, that secrecy is also a major drawback. Even if a cryptocurrency is promised to a certain individual, that individual will have a much harder time actually taking possession of that cryptocurrency than would be the case for other significant assets. That’s because a cryptocurrency can only be accessed with the passcode needed to unlock the account, which is something that only the account holder typically knows. If that account holder has not written down that passcode somewhere for the heir, then accessing the cryptocurrency is nearly impossible. Even the company that owns the wallet that the cryptocurrency is stored in will not be able to access it.
How to pass on cryptocurrencies
To avoid heirs being put in the unenviable position of knowing that a large asset has been promised to them, but being unable to ever take possession of it, cryptocurrency owners should ensure those heirs have a way to unlock their cryptocurrency wallets. As Barron’s reports, people should put instructions about how to access any cryptocurrencies they own on paper and then put that paper in a secure location, such as a safe deposit box.
Given the highly volatile nature of cryptocurrencies, even those who own relatively little in cryptocurrency today should ensure their heirs have the passcode to access that cryptocurrency in the future. After all, even a small amount of cryptocurrency today could be worth quite a bit in the future.
Estate planning help
Estate planning can help protect family and loved ones from unpleasant or unforeseen situations, such as the one described above. An estate planning attorney can help clients create an effective and comprehensive plan for dealing with not just financial assets, but with other important related decisions, such as end-of-life care and powers of attorney.