The first cryptocurrency, Bitcoin, was invented over 10 years ago. Since then, similar digital assets have joined the market – peaking in value in 2017. While the value of cryptocurrency has since depreciated significantly, its popularity continues to grow.
However, digital assets such as cryptocurrency are regularly overlooked in estate planning. Forgetting to include your virtual currency in your estate plan can lead to these funds being lost completely after your passing.
Difficulty in tracing
Although cryptocurrency is digital, there is no electronic (or paper) trail to record transactions. This asset functions essentially as “cybercash.” With the right seed phrase or private key, anyone can gain access to these funds – which is risky. Without these passcodes, these assets are lost forever.
Due to these challenges, it becomes important to be thoughtful about how you include your cryptocurrency in your estate plan. You need to leave behind any necessary passcodes to access the asset, but you also need to make sure this information is not available to people who shouldn’t have it – e.g., those involved in the execution of your estate who are not designated beneficiaries of this asset.
List it in your will
Because there is no record of your cryptocurrency and the asset is not physical, it can be almost impossible for your beneficiaries to discover this asset if they don’t know to look for it. It’s important to include this asset in your will. Otherwise, it could be lost for good.
Cryptocurrency should be treated as a stock or any other asset with a fluctuating value. It should be taxed as property – not currency – based on a fair market value determined by converting into U.S. dollars. There are specific tax arrangements and other provisions that will need to be built into your trust to appropriately handle this asset. It’s important to work with an attorney to make sure your estate plan includes and protects this asset.