What happens to crypto currency when someone dies?

Bitcoin, NFTs, Dogecoin – all forms of cryptocurrencies have gained favour from investors. But unless you have a plan for them in your Will, your crypto assets could disappear forever upon your death.

The popularity of cryptocurrency has exploded in recent months, with its market cap peaking at $3.2 trillion in 2022. 

However, for those who have invested in cryptocurrency, this asset can represent a confusing and an element of uncertainty, where government regulation and industry best practices are struggling to keep up with the rapid change in the crypto sector.

But even if crypto is an investment for you, it is essential to think long-term — including preparing for what should happen to your crypto when you pass away.

Cryptocurrency, or crypto, is a form of digital currency. Instead of being managed by a centralised authority (like a bank), crypto transactions live on an immutable public ledger called a blockchain and are independently verified by a network of computers.

Because crypto assets are decentralised, you must include them in your estate plan and choose someone you trust to execute that plan. Otherwise, it may be impossible for your benefit.

Why should you include crypto in your estate plan?

Cryo is considered a probate asset like your real estate property and other possessions you own in your name.

This means it has to go through probate (the legal and court-driven process of distributing your estate) before it can be legally transferred to your beneficiaries after you die. An estate plan makes the probate process quicker and more accessible for everyone involved.

Note that even the most popular crypto exchanges do not currently support beneficiary designation for crypto assets.

Such as transfer on death (TOD) or payable on death (POD) accounts. These are common ways to keep traditional assets out of probate.

In addition, because of its decentralised nature, crypto has some unique safety concerns that aren’t an issue with assets managed by a centralised authority (like bank or investment accounts). 

Even though crypto is a digital currency, you should treat it like a physical asset with a value akin to diamonds, precious metals, or cash. Anyone who gains access to your crypto can use it — for better or worse. 

Conversely, if you die without giving someone access to your crypto keys, the strings of randomly generated numbers and letters serve as your crypto “passwords”. Your crypto is gone forever, locked in a digital wallet that cannot be accessed.

Because of this, you must plan for your crypto assets and leave clear instructions for the people you want to inherit them.

  1. Name a beneficiary for your crypto assets in your estate plan.

A beneficiary is a person or organisation you want to inherit an asset from when you die. Make sure to list all your crypto assets in your estate plan, where they’re stored, and which beneficiaries should receive them.

In addition to naming beneficiaries for your crypto assets in your Will, you should also name an executor: the person you appoint to administer your last Will.

You could also name a separate digital executor and ask them to protect and preserve your digital assets and property. To make the process easier for everyone involved, consider nominating an executor or digital executor familiar with crypto. 

 If you plan to name co-executors in your Will, consider choosing individuals who get along and work well together and delineate their responsibilities clearly in your Will so there is not any confusion.

As new laws and regulations transform the landscape, revisit your estate plan frequently. This ensures that your nominated executor is well-equipped to access and oversee your crypto investments.

In addition, they need to be able to facilitate their transfer to your chosen beneficiaries without unnecessary cost and delay.

If you own enough crypto that your estate could be subject to estate tax, you may want to consider establishing an irrevocable trust. A properly structured irrevocable trust can remove these valuable assets from your taxable estate.

However, as a general rule, the crypto you transfer to an irrevocable trust during your lifetime won’t receive a basis adjustment (or step-up in basis) when you die.

  1. Understand and document where your crypto is stored.

How your executor and beneficiaries will retrieve your crypto after you die depends on how you store it.

Suppose your crypto is stored in a custodial account on a crypto exchange like Coinbase, Gemini or eToro. In that case, your executor or beneficiaries can contact these exchanges directly to facilitate the transfer of your assets. 

To start this process, they will need to provide your death certificate, probate documents (such as a copy of your Will), proof of identification, and a letter signed by the executor instructing what to do with the crypto in the account.

Posthumous access will depend on how well you document your assets if your crypto is stored offline in a cold wallet (a physical storage device that often looks like a USB drive). Here are some accepted best practices:

  • Document the wallet’s location (ideally stored in a fireproof safe or safe deposit box).
  • Document your private and public keys for each wallet you own. Both are needed to access your crypto. Keep both keys in secure but separate locations.
  • Document any other information needed to access your wallet, like a PIN code or recovery phrase.

Where you store this information is up to you. For example, you may consider keeping it in a safe deposit box, listing it in your estate plan, or entrusting it to an attorney, family member or friend.

Even though the crypto landscape is evolving rapidly, having an estate plan is critical to protecting your crypto assets when you die.

Because of the decentralised nature of crypto, the onus is on you to keep stock of your investments and communicate access instructions to your executor and beneficiaries in the event you pass away.

Having an up-to-date estate plan is essential for everyone, but it can be especially critical for crypto owners who do not want their loved ones to lose access to their crypto assets.