What Happens to Cryptocurrency When You Die?

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Many people celebrate the usefulness of cryptocurrency thanks to its decentralized and private features. However, those same hallmarks can cause estate planning and estate administration headaches, leaving you wondering what to do when you or someone else dies.

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The transfer of cryptocurrency at death mirrors other types of personal property. It can be devised in a will, held in a trust, or passed along through the laws of intestacy. Where cryptocurrency stands apart is its reliance on a private key to make withdrawals. 

The need for a private key and unique account location set the stage for some bumps in the road for heirs. In worst-case scenarios, crypto accounts can be lost forever with their value out of reach for those left behind. 

Fortunately, proactive estate planning ensures that the value of your crypto isn’t lost with you.

What Happens to Your Cryptocurrency If You Didn’t Make a Plan Before You Die?

One can expect that states didn’t write their probate codes with cryptocurrency in mind. Regardless, crypto remains subject to the same procedures and rules as any other personal property you own. 

Small estates

When people have assets but die without a will (also known as intestate), they may not need to go through the full probate process. All states offer easier, expedited processes for small estates without houses or other real property.

Navigating the small estate process can be as easy as signing an affidavit, so it is worth looking into for lower-valued estates. The financial threshold to proceed under the small estate procedure varies by state, but it can go up to $150,000 in some places. 

The beneficiary or other person taking stock of existing cryptocurrency and other assets may need to present the small estate documents to the appropriate custodian. In some cases this could be a crypto account representative or a crypto exchange, if they need a sign off in order to proceed. 

Larger estates and estates with land property

Larger estates or those with real estate usually have to go through probate court in order to appoint an executor to distribute assets. The court issues letters of administration to provide proof of the personal representative’s authority to act on behalf of the estate. 

From there, the court tasks the executor or administrator with following the laws of intestacy to gather and then distribute the estate’s assets. 

When dealing with crypto, it’s possible that there will be nobody to present the letters of administration to an official. This most often happens when cryptocurrency owners use cold wallets, which are offline, physical devices, to store their crypto. Unless the cold wallet is in something like a safe deposit box, there will be no other human or entity involved.

Intestacy and inheritance laws

When someone dies without a will, the probate court requires that the personal representative follow the intestacy laws to distribute assets, including cryptocurrency. When there is no will, surviving spouses are at the top of the list for inheritance. After that comes children.

When there are no descendants, we turn to ancestors. In other words, if there is nowhere to go down on the family tree, officials go up. Parents inherit next, followed by siblings if there are any. When there are no surviving parents, siblings, or descendants of the siblings, then we turn to the grandparent’s generation, and so on.

Additional marriages and the deaths of heirs make the application of intestacy laws more complicated. For families with either of these situations, further research about shares of the surviving spouse and deceased descendants can help you better understand what may happen when there is no will. Or, consult an estate attorney who can apply the laws of intestacy to your specific family structure.

Finding and taking possession of cryptocurrency

When a cryptocurrency owner passes away without an estate plan, those left behind can struggle to find and take control of the cryptocurrency. Often, they have no idea that their loved one owned virtual currency.

To prevent their cryptocurrency from being lost and wasted, owners can include it in their estate plan. Doing so brings attention to it and, ideally, provides instructions for accessing it.

How Can You Make a Plan for Your Cryptocurrency When You Die?

Including cryptocurrency in your estate plans makes it much easier for your personal representative to find your accounts and give them to your heirs. Most importantly, it increases the chances your loved ones will get to use and enjoy what you left them. Several options exist to pass along your crypto.

Name a beneficiary

Naming a payable-on-death beneficiary for an account allows the beneficiary to easily transfer it when the owner dies. Often, they only have to show a death certificate. Beneficiary designations also have the added benefit of keeping that asset out of the probate estate. 

This is an easy, free way to ensure the correct person ends up with your cryptocurrency. Sadly, most users find that their preferred crypto brokers lack the option to name a beneficiary on their crypto accounts, so the beneficiary designation is not widely used for crypto.

Address the cryptocurrency in your will

Given the lack of widespread designated beneficiary options, many crypto owners opt to address their virtual currency in their will, where it is considered personal property.

Putting the cryptocurrency in your will gives the personal representative instructions about who to give it to. In addition and just as importantly, it prevents your crypto from being forgotten or overlooked.

Somehow the personal representative will need the information for accessing the account. Keep in mind that the will itself may not be the best place to record access details as they are usually public documents once filed with the court.

Place the currency in your trust

Trusts are another common estate planning tool that can be established during the life of the asset owner or upon their death via their will. 

Many people make a trust during their lifetime, called a living trust or inter vivos trust. The settlor can be both the trustee and beneficiary of the trust, so they have full control over transactions and can even end the trust at any time.

The settlor names a successor trustee to take over at their death or incapacity. By housing assets in a trust, the settlor gets to make rules about the distribution and maintenance of their assets that will be followed even after they die. The trust assets also avoid probate, keeping them more private.

Placing the crypto in the trust ensures that the successor trustee knows that the crypto exists. Relaying the information about how to access it is an extra, crucial step. 

Make an access plan

Regardless of which estate planning method you use to pass along your cryptocurrency, it will be ineffective unless you pass along your private key and account location.

A blockchain analysis firm estimated that up to 20 percent of Bitcoin is lost forever, whether through inaccessible private keys, lost crypto wallets, or the deaths of owners.

Preventing your account from joining that statistic could be as simple as written instructions in a secure location. But the solution also has to strike the balance of keeping your information safe to keep it from being stolen. A few companies offer technology-based solutions for securely passing along crypto account details after death. 

How Can a Beneficiary or Personal Representative Access a Loved One’s Cryptocurrency When They Die?

A beneficiary’s or personal representative’s experience collecting cryptocurrency depends on the decedent’s estate-planning measures. Ideally, accessing it is as simple as logging into a computer with the provided address and key. Of course, many beneficiaries experience more frustration along the way than that.

Discovering cryptocurrency assets

First, the beneficiary or personal representative has to find the cryptocurrency. For many, this is the hardest part. The decentralized nature of cryptocurrency means there is no major database or registry to conduct a search. While some crypto accounts are on online exchanges, others are stored in offline devices that could be anywhere from a safe deposit box to an attic.

Cryptocurrency investigators can try to help you find missing crypto accounts, and may even be able to help crack the private key. The private key is a long, alphanumeric password required for making withdrawals from a cryptocurrency account. Sadly, without it, the contents of an account remain inaccessible, even to owners who are alive.

Taking possession of the asset

Access to the asset itself depends entirely on the type of storage that the owner used for the account and the private key. 

Cryptocurrency held in cold storage is the easiest to take possession of once found because there is no third-party custodian involved. Cold storage wallets are physical devices that often look like USB drives.

Often, though, a third party will be involved, such as a crypto-asset exchange, custodian, or online wallet provider. In those situations, the beneficiary or personal representative may need to show their small estate affidavit or letters from the probate court. 

Depending on the account setup, beneficiaries often take possession of inherited cryptocurrency without a court order because whoever has the private key can access the account. 

The right to access digital assets

State probate laws were not written with digital assets in mind. Accordingly, 47 states have enacted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA or the Act) to deal with changing probate needs.

RUFADAA gives executors or personal representatives the legal authority to access the digital property of another. Before RUFADAA, some online account custodians didn’t grant access to accounts, even with personal representative documents. 

The act also establishes a hierarchy of documents to determine which one governs when there’s conflict. Under RUFADAA, a custodian’s online management system trumps estate planning documents. Custodians establish a payable-on-death designation through their online management systems.

As a result, if a crypto exchange or wallet offers a payable-on-death designation, that designation determines who inherits the cryptocurrency. 

Make an Access Plan to Pass Along Cryptocurrency When You Die

The security features that make cryptocurrency secure and appealing to users also introduce new inheritance challenges. In many ways, it is much like any other asset. It can be passed along through all the traditional probate and non-probate processes. Unfortunately, passing along an asset to someone does no good if they cannot access it. 

To make your cryptocurrency part of your legacy, make a plan to share access information while still keeping it secure during your lifetime.


Sources: 
  1. “Alaska Statutes 2020.” The Alaska State Legislature, 2020. Akleg.gov.
  2. Krause, Elliott. “A Fifth of All Bitcoin Is Missing. These Crypto Hunters Can Help.” The Wall Street Journal, 25 July 2018, Wsj.com.
  3. Phillips, Daniel. “Lost Bitcoin: 3.7 million Bitcoin are probably gone forever.” Decrypt, 3 Jan 2021, Decrypt.co.
  4. “Access to Digital Assets of Decedents.” National Conference of State Legislatures, 26 March 2021, Ncsl.org.
  5. “Revised Uniform Fiduciary Access to Digital Assets Act (2015).” National Conference of the Commissioners on Uniform State Laws, 8 March 2016, Uniformlaws.org.

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