If you have invested in cryptocurrency—or if you’re considering it—one of the matters that are worth taking into account is how it could impact your estate plan. Virtual currencies such as Bitcoin, Ethereum, and others can create some unique challenges that must be accounted for.
In this post, we’ll look at four strategies to consider using when planning for cryptocurrency in your estate.
1. Create an Access Guide for Your Keys
One of the primary challenges of virtual tokens is making sure your beneficiaries and executor have access to them after you pass away. The 64-digit code used to safeguard your digital wallet needs to be made accessible to those who will be handling your account.
One way to do this is to create a guide for your beneficiaries to follow in order to obtain the key. Clearly spell out how to find your digital accounts, what usernames are attached to them, and how the key can be obtained. You may have to get a little clever here—your key should remain secure while you are still capable of using it.
2. Use a Multi-Signature Wallet
Another strategy involves using a multi-signature wallet for your crypto accounts. This type of service allows designated parties to access your account in the event of your death. This is often preferable to simply keeping the key written down in a vault somewhere.
A multi-signature (or “multi-sig”) wallet requires approval from two or more Copayers to complete transactions. That makes it more difficult for your wallet to be compromised while also creating possibilities for succession and inheritance planning.
3. Use a Trust
As for your crypto funds themselves, there are a number of ways to manage them as assets. One of them that is particularly relevant to estate planning is an irrevocable trust. Placing highly appreciated cryptocurrency into a trust can effectively subtract it from the total valuation of your estate (thereby avoiding potential estate taxes) while also keeping it out of probate.
Once in a trust, the crypto can be traded for more stable assets, making it a solid way to pass on wealth to your heirs.
4. Keep Multiple Records of Assets
Finally, it can help to have multiple records of your assets stored in multiple locations. Doing so helps avoid a situation where the nature and location of your digital assets are lost when you pass away. Having redundant records also acts as a safeguard against lost data in the event of an outage, lost password, wiped hard drive, etc.
These records should be updated regularly. The more active you are with your account, the more frequent the updates need to be. Provisions should also be made to have these records transferred to your beneficiaries in the event of your passing.
Estate Planning for Your Cryptocurrency
A multi-faceted plan is vital for any component of your estate, and it’s no different with cryptocurrency. Making sure beneficiaries are aware of your digital holdings and are able to access them is a major priority here, as is mitigating your tax exposure. Legal assistance can also help you determine the best possible strategy for safeguarding your digital assets in your estate plan. For more information, contact us today.