In this article, we will discuss estate planning for cryptocurrency. While this guide will not be the be-all-end-all to planning for this digital currency, it will cover some important fundamentals, including definitions, strategies, advantages, and disadvantages.
What Is Cryptocurrency?
If you’ve been following the financial headlines over the past decade or two, then you’ve probably seen information about cryptocurrency pop up. This digital currency is a medium of exchange, but it is unique because it does not rely on a bank or central authority to govern it. It is decentralized and largely unregulated. The crypto market can be volatile, but it can also be quite lucrative. It is easy to see why people who are not afraid of risk-taking invest in this digital asset.
Advantages & Disadvantages of Cryptocurrency
As with any financial instrument, cryptocurrency has its benefits and downsides. Its “pros” include:
- Accessibility. Anyone can buy this liquid currency, so long as they have the funds. Some coins even allow you to purchase currency in fractions.
- User Anonymity. If you want, for whatever reason, to remain anonymous, the crypto blockchain allows you to do so. This anonymity is a big draw for a lot of people who value their privacy.
- No Central Authority. Crypto is not tied to any bank or government, and it is totally decentralized.
- High Return Potential. The flip side of the market’s volatility is that coins worth a few cents one day could yield hundreds, if not thousands, of dollars the next.
But, crypto also comes with “cons” to consider, such as:
- High Loss Potential. There are two sides to that aforementioned volatility, and purchasers of crypto might suffer extreme losses in just a matter of moments on the market.
- Limited Use. When compared to cash, credit/debit card, and bank transfer, cryptocurrency is far less accepted at major vendors.
- No Government Regulation. While some might appreciate the lack of oversight, others are wary about crypto’s freedom from government regulations.
Do Estate Plans Cover Crypto?
Estate plans can cover cryptocurrency, as well they should. After all, it is an asset you own that you may want to hand down after you die. Plus, the market is constantly shifting, so who knows how much value your coins could have one day? Some people do believe crypto is the future of payment (while others, obviously, disagree).
The nature of crypto (and NFTs, for that matter) can make it difficult to place into a traditional estate plan, though the laws are still evolving. Keeping a digital legacy, regardless, is important. This organized, updated list contains information about your digital assets, including quantity, type, passwords, keys, and information that a fiduciary would need to access your crypto.
It is currently difficult to put your crypto assets in the name of a revocable/irrevocable trust. But, you can still include this currency in your will. It will have to pass through probate, however. The most important thing to note when it comes to this digital currency is the ability to track it. Your executor cannot execute your will if they do not have information on how to access your coins.
Challenges In Estate Planning For Crypto
The unique nature of this currency brings with it a lot of challenges. Trustee companies tend to know little about cryptocurrency, according to Bloomberg, but estate planning attorneys are likely to be more knowledgeable. Because there isn’t much personal information associated with crypto and it requires a private key to get in, this asset must be handled differently than others.
If you are thinking of investing or have already made investments into cryptocurrency, it is important that you talk to an estate planning attorney, if you haven’t already. You will want to protect this asset the way you do your other holdings, in order to keep it available to your heirs.