With an estimated 36.5 million people in the United States holding certificates for some form of cryptocurrency, you may want to consider adding it to part of your portfolio. Times have changed and our investments are no longer just brick and mortar, paper, or even centralized. This change may make tracking our investments more complicated. But just as we make plans for our stocks, bonds, property, and other investments, we need to consider what will happen to our cryptocurrency after we die. It's now a critical part of our estate planning.
Understanding what to do with cryptocurrency starts with having a clear idea of what it is. Cryptocurrency is virtual currency that has been encrypted to ensure its security. Because it is secured through cryptography, it is nearly impossible to counterfeit—a huge advantage over standard paper currency. Another trait of cryptocurrency—and part of what makes it so secure—is that many of the forms of cryptocurrency are held in decentralized webs or networks. They use “blockchain technology—a distributed ledger enforced by a disparate network of computers.”
Estate Planning with Cryptocurrency
Because cryptocurrency is an asset—even if it looks very different from property or stock statements—it's an essential piece of your estate. Too often, because it is decentralized and wholly online, it can be forgotten or get lost in the shuffle of traditional estate planning.
Access to Account
The first step to ensuring that your cryptocurrency investment is included in your estate is to make sure your inheritors have access to the account. This may sound obvious, but it's not uncommon for family members to be completely in the dark when it comes to the usernames and passwords of loved ones. Some cryptocurrency professionals suggest going decidedly low-tech: simply writing it down. Having a single document that tells important family members exactly what the asset is, how they can access it, all passwords, PINs, and other access requirements. It's a good idea to also provide web addresses, phone numbers, and other contact information for anything involving your cryptocurrency. Another idea is to make multiple copies of your assets on USB drives and store them somewhere secure, like a safety deposit box. This is the first step for access, the nuts-and-bolts of being able to access your account. The legality of that access is a separate question.
Who exactly can access your investments and personal financial information is a question everyone needs to ask themselves when they are setting up assets that will be inherited upon their death. And this legal access is as important as actually knowing the password to your account. In fact, the Revised Uniform Fiduciary Access to Digital Asset Act (RUFADAA) has established regulations for digital account ownership and guidelines for how the appointed managers must behave—in the interest of the original account holder, for example. These guidelines are strict and kept up-to-date with the latest changes in technology.
Something to note, too, is how important it is that your written documents—such as wills—reflect the reality of your accounts. According to a Forbes article on cryptocurrencies, “under RUFDAA, online management systems are atop the hierarchy over any other form of instruction about an account.” That's because, regardless of what your will or power of attorney documents may warrant, whoever is set up as a beneficiary online will have access. That's why knowing what you've agreed to online—and if it's in line with your written will—is essential. The most important person to share exactly what your assets are and how they can be accessed is your executor.
Like any investment, it's important to check in with your cryptocurrency holdings frequently. This action not only helps you stay aware of exactly what you own, but also sure that you have access, and that nothing has changed. How frequently you update your account information will depend on your activity level—some experts suggest once a year for infrequent buyers/traders, and more frequently for others. In many states, laws have recently been adopted to allow digital assets to be managed just like any other holdings.
Understanding What You Have (or Not)
One of the most important things to keep in mind as you make an estate plan involving cryptocurrencies is that it's very difficult to predict what they might become. This feeling may keep us from treating cryptocurrencies with the same seriousness with which we treat stocks and bonds or property. But it's important not to let that lack of understanding—or inability to predict the future—be a hindrance to your planning. It's critical that you do the same work to provide access and leave a clear blueprint inside your estate plan for these cryptocurrency holdings.
Cryptocurrencies are both like and unlike any asset in your portfolio. Many resources exist online, and speaking to an estate planning expert may help.