In a tidal wave of new digital currencies and a transforming market, cryptocurrency continues to make headlines. A little over a decade ago, however, there was plenty of skepticism surrounding blockchain technology and decentralized money. It can be hard to imagine that, today, your digital assets should be treated as valuable property. Cryptocurrency estate planning may not be as clear-cut, but as technology changes, wills and trusts should move to include these essential assets.
One of the value propositions of decentralized payment systems is that you as the individual are in charge of and responsible for looking after the things you own. And this of course certainly also includes the crypto currencies such as Bitcoin, Ether, Ripple, etc. you own. This article aims to shed light on what additional ‘responsibilities’ you may have to consider when it comes to including crypto currencies in your will.
Two Ways of Losing Your Crypto
If you’re familiar with blockchain technology, crypto is based on a distributed database of transactions. Being open-source, the peer-to-peer platforms focus on authentication via structured and trackable data. The implication for users is that protecting and tracking your own exchanges is imperative. Still, there are many ways to improperly manage your crypto.
Losing access to your crypto is dangerous. Unlike centralized banks where bank cards and accounts are easily restored, decentralized networks do not have third-party systems where users can appeal or replace accounts. Instead, managing your own crypto is vital. There are two specific ways you can lose access to your crypto. These are:
You lose access or lock yourself out
Your crypto gets stolen
By far the most common way people lose their crypto is via the former option. Through very simple things such as forgetting how to access their crypto tokens, or losing their phones and not knowing where they kept their backup phrase (or have not made a backup at all). Of course, the cryptocurrency world is fast-changing, so even though you may have kept solid records when you purchased tokens, your wallets may look and behave a little bit differently in the future.
It is an unfortunate but also a natural occurrence that crypto can get stolen. However, it is in most cases that theft is made possible because of inadequate protection or irresponsible behavior on part of the owner.
When it comes to including cryptocurrencies in your will, we need to consider how these two main ways of losing your crypto are applicable to the entire process of creating your will, estate settlement, beneficiaries accessing the crypto, and liquidating it.
How To Properly Manage Your Crypto Assets
Be brutally tidy in every aspect of dealing with your crypto assets and how you choose to include them in your will. Certainly, the field of cryptocurrencies is continually expanding, but the knowledge base around decentralized banking is not yet commonplace. What you may know of crypto coins may not translate for loved ones named as beneficiaries in your will. As a result, documentation is the biggest tool in your arsenal, ensuring that your cryptocurrencies remain an asset and not a liability.
What to document - everything! How and where, how much, and when did you purchase tokens? If in doubt, document everything in such a way that if you were to hand over your documentation to somebody else they should be able to follow and understand your instructions.
IMPORTANT NOTE: Do not store/save your private keys or seed phrase in your documentation! Remember that documentation and wallets are two separate entities. A knowledgeable estate planning lawyer versed in cryptocurrencies can help guide you in how to secure cryptocurrency. Documentation should, instead, state where and how somebody can access your private keys and seed phrases.
SECOND AND MORE IMPORTANT NOTE: Never ever save or mention your private keys/seed phrase directly in your will documentation! NEVER! Later in this article, we show a potential way how this can be done correctly.
Please be conservative when you include crypto assets in your will. If you are tempted to be experimental, please ask yourself, first, if it is really useful to burden the people you love with the latest NFT token that can be traded on the metaverse or asking them to liquidate their CDP (Collateralized Debt Position) by creating and signing an Ethereum transaction.
If you are inclined to be playful, experimental, and love the technical challenges that come with engaging with the latest developments in the blockchain ecosystem, go for it! At the same time please make your inheritance a gift to your loved ones by making it easy for them to continue where you left off. Or even more extreme, avoid making your loved ones liquidate your crypto holdings in order for them to cover your funeral costs.
Cryptocurrency Estate Planning
A natural first step in understanding how to include crypto assets in your will is to understand the different methods of storing crypto. In most wills, checking and savings accounts can be easily transferred to beneficiaries as outlined.
When you hold crypto in online accounts, it is reasonably straightforward to include these in your will since such accounts behave similarly – from a will execution point of view – to traditional bank accounts. For example, you can create a Bequest on wills.com and specify that the crypto assets held on a particular platform (such as Binance) should go to a specifically-named beneficiary.
If it is possible and desirable, try to make your husband, wife, and life partner a co-owner of these online accounts. It works similarly to traditional bank accounts.
When it comes to documenting online accounts, things that should be written down on a piece of paper are account owner details, such as:
What ID verification (driving license, passport, etc.) was used to create the account?
What email address, mobile phone number, password, security questions, and second-factor authentication were configured?
When was the account opened?
While this will be obvious and easy to see in online accounts, in some circumstances it may be beneficial to also specify what crypto holdings have been purchased in this online account.
Digital Wallets: Holding Private Keys to Your Crypto
This is where the fun begins! When you hold the keys (either as a private key or via a seed phrase) to your own crypto you are then also the custodian over your cryptocurrencies. Consequently, you are now also fully responsible for the entire process of what happens to your crypto wealth when you pass away.
This might be a good place to reiterate an important note we made earlier: Never ever write down or mention a private key/seed phrase in your will directly!
A very elegant and easy solution to include crypto in your will is to use paper wallets. A paper wallet typically is a piece of paper on which a crypto currency’s public key (aka address), as well as the private (secret) key together with the corresponding QR codes, are printed.
Bitcoin Paper Wallet is a website for example that allows users to create and print a paper wallet for Bitcoin. The elegance of paper wallets lies in the ease to create a Bequest in your will. For example, it is very straightforward to specify that you would like to give the X amount of Bitcoins, Ether, Ripple, etc. that are saved on the paper wallet with the Address of 0x1234…1234 to the person X.
To make it as easy as possible we recommend that a single paper wallet should always only be given to one person. Of course, it is equally easy to create multiple paper wallets with different denominations for different or the same individual. When it comes to settling your estate after your passing, these paper wallets are then being physically handed over to your loved ones.
Hardware wallets have also become a very convenient and secure way to store your crypto in recent years. It is also reasonably easy to create a Bequest and specify the Hardware Wallet. Be careful in making sure that there is no confusion about what Hardware Wallet you want to bequest by for example mentioning the serial number of the wallet in your Bequest.
A very important point for hardware wallets is the documentation of how the crypto stored on the hardware wallet can be accessed. What is the pin and or a password for the wallet? How does it work?
In talking about wallets it is also important to think about the physical environment in which these are stored? Are they stored together with your important documents, under your mattress, or in a safety deposit box at a bank? Again, if you have a paper/hardware wallet that is secure and safely stored somewhere but your loved ones cannot get their hands on it (because you did not provide clear instructions) this crypto wealth might remain lost for a very long time.
Maybe you are in a fortunate position to know people you trust in your circle of friends, among your relatives, and your colleagues who are also involved in the cryptocurrency space. Can you ask them if you can mention them in your will to serve as a co-executor and assist the executor of your will in distributing your crypto assets in accordance with your will?
Going one step further, maybe you might even be able to share your crypto documentation (without any private keys and seed phrases please) with such a person and ask for feedback on what could be improved?
Even if your partner, spouse, or husband are not very technology savvy can you still include them in the process of creating the documentation and provide some training? Can you show them what you have done? Can you share the documentation with them?
Proof of funds
A more recent development in the cryptocurrency space has been that financial institutions such as banks as well as crypto market places are now requiring documentation (bank account statement, bank transactions, etc.) on when and where you acquired the crypto tokens at the time when you try to liquidate such holdings. For example, if you try to sell 0.1 Bitcoin you need to show documentation of when and where you acquired this partial Bitcoin. This documentation is needed to show to the authorities that the crypto was acquired legitimately in the first place.
In addition, more and more jurisdictions around the world are implementing various taxes on cryptocurrency gains. Here again, it is vital to have accurate and complete documentation on all the crypto holdings you’re gifting to your loved ones.
A specific example of how the author would hand over crypto.
- Create an account with one of the main crypto platforms that are respected and properly regulated within your jurisdiction. We want to make sure that the ‘authorities’ (banks, IRS, etc) are happy with the documentation we provide them from these platforms. We want to avoid at all costs that such authorities do not accept our documentation because they have never heard of the cryptocurrency platform we are using. Make sure that this platform also allows you to transfer your crypto holdings off the platform and into your own wallet.
- All crypto that is mentioned in the will has to be purchased through this platform. If there are crypto holdings where detailed purchase documentation is difficult to attain in hindsight, they should be liquidated and purchased again through this established platform. This includes all your crypto holdings on all types of wallets you may have.
- This is a very extreme statement but from the authors point of view is it not better to pay a 2% fee for selling and repurchasing existing crypto holdings than having your loved ones denied access to this wealth (because of inadequate documentation) and pay a fee of 100% and a lot of nightmares on top of that?
- The majority of crypto wealth will be handed over via the use of paper wallets. A paper wallet will be bequeathed to only one individual. Of course, a person can bequeath multiple paper wallets. Every paper wallet will also have a printout of the purchase documentation attached (when, how much, what price) as well as documentation of the transaction where the crypto was transferred from the platform and into the paper wallet.
- If you are a regular user of a hardware wallet and would like to use hardware wallets instead of paper wallets in your will (there are many good reasons for doing so) it may be beneficial to have a dedicated hardware wallet with (you guessed it) perfect purchase documentation that is mentioned in your will.
- Create a bequest for every online crypto account you own. This will ensure that your loved ones do not miss any of the accounts you interacted with and potentially still have some crypto holdings on.
- If you can think of a ‘crypto-and-tech-savvy’ person that is not a beneficiary in your will (a friend, relative, maybe a lawyer) share the entire documentation with this person and ask for feedback.
- Talk about crypto with the people you love and teach them some of the basics. Tell your partner, husband, or spouse where this documentation and as well as the wallets are kept.
Having a plan to include cryptocurrency in your will can be difficult and technical. To simplify the process for your named beneficiaries, it’s critical to document all details of your crypto assets. Also informing your loved ones about your cryptocurrency might help to provide more information ahead of time and give them clarity on digital assets in a will. Crypto wills and asset management through providers like wills.com can provide detailed steps on how best to include your various digital currencies.