By: Barry E. Haimo, Esq.
February 20, 2018
What You Need to Know about Estate Planning for Bitcoin and Cryptocurrency
If you are one of the many who have invested in cryptocurrency, such as bitcoins, then you may have spent a lot of time following its recent volatility. But have you taken the time to protect that investment for your spouse, children, or other heirs?
Due to the very nature of cryptocurrency, it is easy for a record of your investment to be lost. Since all transactions and accounts are digital and not connected to real-world identities, your loved ones may not know how to access your cryptocurrency – or even know it exists in the first place.
That’s why it is estimated that about 20% of all Bitcoin is lost. As of January 2018, that “lost” money would have been worth over $25 billion. Don’t let your Bitcoin die with you. We’d call that an estate planning blunder.
Here’s what you need to know about estate planning for Bitcoin and cryptocurrency if you have already invested or plan to in the future.
Keep a written record.
It may seem like an odd thing to do for an entirely digital asset, but without a written record of your personal key, it is impossible to access your crypto assets.
In fact, so many bitcoins have been lost that a new profession has been created: Bitcoin bounty hunters. They will help you track down long-lost bitcoins for a small fee. Unfortunately, they cannot help you at all if you don’t have at least part of your private key.
You should track:
- What type of cryptocurrency you own
- Where you bought it
- How much you bought
- How someone can access it
- And any back-ups you have
Then lock up that information somewhere safe, such as a safety deposit box. In particular, it is vital to keep your private keys and wallet usernames and passwords safe, since anyone who has to them can manage your cryptocurrency.
Inform your estate planning attorney and your executor or trustee.
Having a written record won’t do much good if no one knows it exists or where to find it.
Make sure you inform your estate planning attorney and/or your heirs:
- That you own crypto assets, and
- where you stored the relevant information.
Some estate planning attorneys will even store your safe deposit box key, safe key, or safe combination for you, only releasing it to the person you specify after your death or upon incapacity.
Consider a revocable living trust.
The privacy of cryptocurrency is part of its appeal for many investors. Unfortunately, that privacy can go out the window after your death if you do not prepare properly.
Because probate is a public process. All assets in your Last Will and Testament will become public records. Anyone can discover the balance of the cryptocurrency passed on your heirs. If it is a large sum, this can potentially lead to your family becoming targeted by hackers or con artists.
You can avoid making your cryptocurrency investment public by including your crypto assets in a revocable living trust.
Include crypto asset access in your Power of Attorney.
If you become incapacitated, you likely want to ensure that the person you designate in your Power of Attorney is able to handle all of your financial affairs, including your crypto investments.
Make sure your Power of Attorney explicitly grants your agent access to your cryptocurrency and/or digital assets. And give your attorney or your agency instructions on how to access the location of your private key or login info. We have made accommodations for this evolvin area of law.
Prepare for Florida’s Prudent Investor Act.
Under Florida’s Prudent Investor Act, your executor or trustee is required to diversify investments. Bitcoins are considered an investment, not cash; and they are one of the most speculative and lately volatile assets out there. So, your executor or trustee may have to sell the bitcoins and diversify into traditional securities in order to be compliant with the law.
If you don’t want that to happen, you need to add a specific provision in your will or trust that explicitly overwrites this requirement. You can absolve your executor or trustee from liability for failure to diversify your Bitcoin investment, enabling him or her to hold your bitcoins for the long term.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
YOU ARE NOT OUR CLIENT UNLESS WE EXECUTE A WRITTEN AGREEMENT TO THAT EFFECT. MOREOVER, THE INFORMATION CONTAINED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. EACH SITUATION IS HIGHLY FACT SPECIFIC AND EXCEPTIONS OFTEN EXIST TO GENERAL RULES. DO NOT RELY ON THIS INFORMATION, AS A CONSULTATION TO UNDERSTAND THE FACTS AND THE CLIENT’S NEEDS AND GOALS IS NECESSARY. ULTIMATELY WE MUST BE RETAINED TO PROVIDE LEGAL ADVICE AND REPRESENTATION. THIS INFORMATION IS PROVIDED AS A COURTESY AND, ACCORDINGLY, DOES NOT CONSTITUTE LEGAL ADVICE.