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Don’t Shortchange Your Heirs: Have an Estate Plan for Your Cryptocurrency

When an individual purchases cryptocurrency there is often no paper trail and no physical assets for an executor or trustee to discover. Indeed, the anonymous nature of purchasing, selling, and owning cryptocurrency is one of its greatest selling points. However, the same anonymity that has driven individuals to own cryptocurrency also presents challenges for handling cryptocurrency upon the owner’s death. Today, people are including their digital assets such as social media accounts, patents, and digital files in their estate plans. But some may be overlooking an important digital asset – cryptocurrency. If you invest in a cryptocurrency, you need to include it in your estate plan. If you don’t, your money could be lost forever.

Tools to Access a Cryptocurrency Account

People like investing in Bitcoin, Litecoin, Ethereum, and other cryptocurrencies because of the security and anonymous nature of the transactions. Unlike traditional bank accounts, the cryptocurrency owner cannot designate a beneficiary upon death or receive periodic statements. There is no phone number to call or website to visit to access your account information after you pass away. Even the largest cryptocurrency exchange platforms, such as Coinbase, do not allow a user to designate a beneficiary. Cryptocurrency owners must be diligent to ensure that their heirs, executor, or trustee know of the existence of cryptocurrency accounts and how to access those accounts.

For many assets, just knowing about the existence of the account is enough information for your executor or trustee to gain access to the asset. However, cryptocurrency presents unique challenges, and it is not enough to simply note that you have cryptocurrency. You will need to share your private key, password, and two-system authentication information for each account (called a wallet) in order for someone else, such as an executor or trustee, to gain access to your cryptocurrency assets. Below is a brief explanation of the information that must be shared to obtain access to your cryptocurrency account:

Private Key – The private key is an essential part of how Bitcoin and other cryptocurrencies operate. The private key is the secret number that verifies ownership and access to the cryptocurrency. The private key is an extremely long number. If you have written it down in your records without explaining what it is, there is a chance your executor, trustee or loved one could toss it out or dismiss it.

Passwords – In addition to the private key, which acts like the account number for your cryptocurrency, your executor, trustee or loved one will need any passwords you have for your wallets.

Two-Factor Authentication – Cryptocurrencies use two-factor authentication for security purposes. Often, a mobile application generates a one-time code that the user inputs when logging into their cryptocurrency wallet. Include what mobile application you use and how to access it for two-factor authentication.

Cryptocurrency owners should record private keys, passwords, and two-factor authentication information for each wallet on a piece of paper as well as on an encrypted thumb drive. Consider having two copies of each and storing the sets in different safe deposit boxes to ensure the executor or trustee can access the information. If you are comfortable, you could also store this information on a secure, digital archive site and share the log-in information.

It is up to the owner of the cryptocurrency to keep account information updated. It is wise to set up a consistent schedule for updating account information or details so that your named executor or trustee has the most current information about your digital accounts and transactions.

If you have a power of attorney, explicitly outline in the document that your attorney-in-fact can access your cryptocurrency and/or other digital assets and provide that person with the same information noted above to access your wallet.

Prepare for Taxes

When preparing your estate plan, note what you want to happen to your cryptocurrency when you die. Do you want it to be retained in its current wallet? If so, what happens when your heirs sell it after it has appreciated in value? Should your heirs convert it to cash after your death?

What happens to your cryptocurrency after your death will determine how it is taxed. The Internal Revenue Service classifies cryptocurrencies as property, rather than currency, for federal income tax purposes. (See Notice 2014-21 for more details). This requires the cryptocurrency owner to keep track of capital gains and losses on their cryptocurrency transactions.

When the cryptocurrency owner dies, the beneficiaries receive the cryptocurrency with a tax basis at the fair market value on the date of the owner’s death. For example, a father leaves his cryptocurrency account to his daughter. At the time of his death, each cryptocurrency had a value of $1,000. When his daughter spends the cryptocurrency, it has a fair market value of $1,200, so she has a taxable gain of $200. It does not matter how much her father spent at the time he purchased the cryptocurrency; what matters is how much the currency was worth at the time of the father’s death.

The tax policies around cryptocurrency can be tricky. That is why it is best to involve an estate planning attorney or accountant to ensure your loved ones understand the tax implications of receiving and using cryptocurrency.

Seek Assistance from Professionals

It is wise to revisit your estate plan periodically to ensure you have included all of your current investment and asset information. Do not overlook your cryptocurrency accounts. Because of the relatively new and complicated nature of cryptocurrencies when it comes to estate planning, consult a lawyer to ensure you have taken the necessary steps to properly pass on your virtual currency. If you don’t, you are shortchanging your heirs.

For more information, or to have an estate plan prepared, please contact a member of the Estate Planning Practice Group at Bingham Greenebaum Doll LLP.

Bingham Greenebaum Doll LLP's estate planning attorneys provide a diverse range of legal services to our clients. From estate planning to wealth transfer and family business, our attorneys work closely with clients to hel

  • Justin W. Jones

    Justin is an Associate in the firm’s Business Services Department, where he assists with general corporate and transaction matters. He is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS.

    While in law ...

  • Kate E. Beatty

    Kate focuses her practice in estate planning, probate administration and fiduciary litigation in the firm’s Estate Planning Department. Kate also specializes in environmental compliance, permitting and enforcement issues ...



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