Preparing Your Estate for Cryptocurrency: Key Considerations for Digital Assets

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Key Takeaways

Make cryptocurrency part of your estate plan. This will position you to meet its expanding influence on today’s financial portfolios and ensure your family’s long-term financial well-being.
Begin by listing every one of your digital assets, from cryptocurrencies to NFTs. Second, develop a clear and secure inventory to ensure your executor can readily retrieve this information.
Use hardware wallets or store other digital currencies/assets through encrypted files. Furthermore, enable multi-factor authentication to add an extra layer of security.
Pick an informed digital executor with crypto credibility. Provide them with clear guidelines and tools to handle your digital assets protectively and proactively.
Consult legal and tax professionals to navigate complex regulations, minimize tax liabilities, and ensure your estate plan complies with current laws.
Make it a habit to check in on your plan periodically. Revise it regularly to account for fluctuations in your crypto assets, currency valuations and relevant laws.

Keeping your crypto assets in mind when creating or updating your estate plan is key. With the increasing influence of cryptocurrencies and overall digitized investments, they’ve formed a pivotal aspect of various portfolios.

Including them in your estate plan not only protects the value of these assets, but it ensures they will be passed on to the right people. From private key security to digital asset beneficiary designations, these unique assets need to be treated with special consideration.

Unlike more traditional forms of investments, digital assets need express instructions on how they can be used or transferred. Without thoughtful planning, your family and friends will be left to deal with those added complications.

Our new digital assets guide will equip you with actionable steps to include cryptocurrency and other digital assets in your estate planning. We’re putting you on the road to confidently plan for your future!

Why Include Crypto in Estate Planning?

Cryptocurrency is quickly becoming an essential part of many investment portfolios. Including it in your estate planning is not a luxury, it’s a necessity. Digital assets—including cryptocurrency—are the new frontier in digital asset value.

Though they are treasures unlike any other, they pose challenges of their own that require thoughtful planning to maintain them and provide access for future generations.

Understand the Growing Importance

As we know now, cryptocurrency quickly boomed into a well-respected asset class. Today, that includes millions of people who own digital currencies like Bitcoin and Ethereum. Its value may constitute a large portion of your estate.

If you don’t address it, you might be missing out on a key financial asset. Like any other asset, proactive planning is essential. Develop a comprehensive inventory of your digital assets, documenting private keys, wallet locations and access instructions.

This ensures your beneficiaries have straightforward access to these assets. Without this, due to the decentralized nature of cryptocurrency, there is no third-party custodian to go to in order to recover these lost funds.

Overcome Unique Estate Planning Challenges

Given the volatility and unique classification of cryptocurrency, valuing and eventually transferring it in estate planning can be tricky. Like all digital currencies, they’re considered intangible personal property. Unfortunately, their value wildly fluctuates, increasing the challenge.

One effective strategy can be to gift cryptocurrency during a “crypto winter” when values have dropped, thereby minimizing transfer taxes due. Moreover, long-term holders are rewarded with lower capital gains tax rates.

Without a concrete method in place, there is a risk of loss of access or contention over ownership.

Secure Your Family’s Digital Future

A thoughtful estate plan will provide guidance for electronic or digital assets, such as where to find them and how they can be transferred. Teaching your heirs how to handle crypto is just as critical.

Your beneficiaries need to know their rights and how to inherit these assets without hassle all while making sure your digital wealth is retained.

How to Inventory Your Digital Assets

Making digital assets part of your estate plan begins with putting together as complete an inventory as possible. Cryptocurrency values change by the minute, and digital assets are rarely all in one place. By developing a straightforward and cohesive inventory, you ensure that your assets are properly tracked and accessible to your executor.

This is a great way to secure your investments over time and keep their value intact for all of your beneficiaries.

Identify All Crypto Holdings

Picture this—you have 15 different cryptocurrencies in your portfolio. Include widely known assets such as Bitcoin and Ethereum, and remember to add any lesser-known altcoins or tokens you might own.

This means you’ll need to note the current market value of each asset and provide purchase history information, including dates and amounts spent. For example, if you purchased Ethereum for $1,200 per token, record this next to its current market value.

Consolidating holdings by type or platform makes maintaining the portfolio easier and allows for a smoother portfolio traversal by your executor.

Document Wallet Addresses and Exchanges

Second, take an inventory of any wallets that house your assets. If you hold coins in hardware wallets, software wallets, or paper wallets, list each address with control clearly defined.

Add information about any exchanges you may use for trading crypto or storing your crypto, such as Coinbase or Binance. Storage of these records is equally important.

Use encrypted files or password-protected documents to protect sensitive access credentials.

Centralize Asset Information Securely

Lastly, catalog all this information in a centralized document or digital vault. Digital vaults are especially handy for passwords, transaction records, and other key information.

Make sure to regularly update this inventory as the portfolio changes and as laws surrounding the use of digital assets develop. Assign a trusted friend or family member to have regular access to these records, allowing for efficient continuity of care when you’re away.

Securely Store and Manage Crypto Assets

As cryptocurrencies increasingly play a vital role in contemporary estate planning, including a comprehensive digital estate plan becomes imperative. By implementing effective digital asset management strategies, your crypto accounts will be safeguarded from malicious actors, ensuring that guardianship passes to your intended heirs when it’s time.

Choose Secure Storage Methods

Choosing a storage solution is one of the most important decisions you’ll make. Hardware wallets, such as Ledger or Trezor, provide storage offline with encryption as additional protection. Software wallets, like MetaMask or Coinbase Wallet, offer a level of accessibility but need more precaution.

Consider features such as two-factor authentication, recovery and backup options, and overall user experience. Hardware wallets are ideal for long-term holders as they are relatively immune to cyber attacks. Conversely, software wallets are great for users who transact often.

Finding a balance between convenience and security is crucial. Cold wallets give you the highest level of security, but hot wallets are more convenient.

Implement Multi-Factor Authentication

Multi-factor authentication (MFA) is an important security feature that should be used with any crypto account. Enable MFA wherever possible, preferably with authentication apps such as Google Authenticator for increased security.

Pair this with complex, frequently changed passwords to keep your accounts safe. Teach your family about these practices—their participation is key to keeping everyone secure. For example, just teaching the value of not sharing passwords and being able to identify phishing attempts goes a long way.

Regularly Update Security Measures

Make it a habit to review your security protocols to ensure you’re staying a step ahead of emerging threats. Monitor and ensure wallets and development tools are regularly updated to the latest versions to mitigate vulnerabilities.

As with anything, make sure you keep your executor and beneficiaries informed about changes. Platforms, such as Wealth.com, make it easy through decentralized AI-driven tools for seamlessly managing and securing crypto assets, from a digital vault.

Look to crypto-native alternatives and features, such as Apple’s Legacy Contact and Google’s Inactive Account Manager, for secure access and management after you’re gone.

Plan for Crypto Assets

Planning for crypto assets as part of your estate will allow for controlled and seamless management and distribution after your death. Digital assets, including cryptocurrencies, hold both financial and sentimental value, making them critical to include in estate plans to prevent loss or legal issues.

These emerging assets have grown to represent a significant portion of investment portfolios. This trend is particularly pronounced with respect to millennials and Gen Z, which account for 94% of cryptocurrency purchasers.

1. Designate a Digital Executor

Your executor must be comfortable with cryptocurrency and handling digital assets. Onboarding involves understanding how to manage private keys, wallet interfaces, etc.

Further, know the tax implications. The IRS considers cryptocurrency to be personal property, as outlined in IRS Notice 2014-21. Give them transparent, unambiguous instructions about their authority to make sure they act in the best interest of your assets.

2. Grant Access to Digital Wallets

Accessing wallets involves very specific steps that should be outlined in your estate plan. Store keys or passwords securely, using encrypted methods or encrypted third-party password management services to avoid compromising the key or password.

Provide details for various types of wallets, hardware or software, with a focus on keeping this information accessible only to the executor.

3. Provide Clear Instructions

Develop clear guidelines for managing digital assets. For example, indicate whether or not you’d like cryptocurrencies to be able to be exchanged, transferred or held.

Given that values can change in an instant, a coin valued at thousands today may drop several zeroes tomorrow. It’s imperative that any approach detail plan.

4. Use a Crypto Estate Planning Platform

Crypto-focused platforms require less documentation while enhancing the overall security of digital assets. By implementing the highest level of security and maintaining legal compliance across jurisdictions, they protect your digital estate plan effectively.

5. Consider a “Dead Man’s Switch”

Automated tools like this can help with digital estate planning to distribute more assets equitably when benefiting conditions aren’t met. Identify a great process to minimize mistakes.

6. Regularly Review and Update Your Plan

Make room for adjustments such as new legislation or major life changes. Rebalance holdings periodically.

If necessary, rebalance holdings to match new ICO risk profile.

7. Educate Your Executor

Provide them with tools or training to better understand the complexities of managing a digital estate plan.

8. Address Tax Implications

Minimize taxes with thoughtful estate planning strategies and ensure the executor understands their obligations.

Navigate Legal Considerations

Creating a digital estate plan or succession plan for today’s digital assets, including any cryptocurrency you may own, involves specific legal considerations that should be discussed in-depth with an estate planning attorney. The unique nature of these digital asset holdings demands careful planning to ensure compliance with evolving laws and to protect their value for future generations.

Understand Digital Asset Laws

Digital assets have been left to flail under a complex and often inconsistent legal framework. Know your rights. Research is critical when understanding ownership rights, as well as transfer regulations, and how they might apply to cryptocurrencies.

State laws, which can vary substantially, thus playing a critical role in determining how your assets are ultimately managed and distributed. With the adoption of RUFADAA in some states, fiduciaries have a more explicit route to resolution for digital assets.

Alternatively, many other states are still operating under murkier standards. Privacy laws are a vital part of the protective framework surrounding sensitive data. The mishandling of private keys can lead to major breaches and violations.

Since most major platforms, such as Coinbase, do not allow for beneficiary designations, transferring these assets can become a complex issue without the proper legal preparation and advisement.

Draft Specific Will Provisions

Your will should have clear, specific instructions for dealing with your digital assets. Explain how they should be passed along to heirs and how they relate to more conventional assets.

Information, which may be highly sensitive like private keys, should never be contained in the will. Second, as Sean Foote points out, since wills are public documents, making them public could leak sensitive information, so some form of secure storage is critical.

Consult with Legal Professionals

Given the complex legal issues involved in cryptocurrency in estate planning, it is imperative to consult with qualified attorneys experienced in these areas. Smart attorneys can help you build your plan to incorporate your digital assets and deal with things such as probate.

Corey Roun says the key is pre-planning, because if keys or passwords are lost, assets may become impossible to access. Digital tools, such as Wealth.com, can make this process even easier.

Address Valuation and Taxation

As cryptocurrency increasingly finds its way into our investment portfolios, digital estate planning needs to keep pace by ensuring these digital assets are included. This type of wealth transfer requires proper valuation and tax advice to protect the transfer and comply with the law.

Determine Fair Market Value

No doubt accurately valuing cryptocurrency will be one of the most important first steps in estate planning. Cryptocurrencies are understandably very volatile, and thus should have their fair market value estimated as often as possible.

Great reliable sources, like cryptocurrency exchanges with nice user interfaces, like Coinbase or tracking platforms, like CoinMarketCap give real-time pricing that you can easily access. Having a record of these valuation approaches makes things easier for executors and beneficiaries, reducing conflicts when it comes time to distribute assets.

For example, if you hold Bitcoin, recording its value at the time of your estate update simplifies matters for your heirs. Beyond best practices, this documentation will help ensure compliance with IRS standards for 990 reporting.

Understand Tax Implications

According to the IRS under Notice 2014-21, cryptocurrency is classified as personal property. This means it is subject to capital gains and estate taxes.

Donors of non-cash assets can deduct the full appraised value, up to 30% of their assets that they have held for more than a year. For assets held under one year, they can only deduct 50% with a limitation and a five-year carry over.

Don’t be left behind—know the current tax code! Implementing strategies such as gifting while you are still alive can help reduce your tax burdens. Estate plans developed more than ten years ago generally do not include directives to manage or distribute digital property, making it essential to update these documents.

Plan for Capital Gains Taxes

Unfortunately, transferring crypto often triggers capital gains taxes, so proactive planning is all the more important. Strategies like offsetting capital gains with losses from other investments to increase this net figure further lower the tax burden.

Working these considerations into your estate plan leaves beneficiaries with more wealth and less hassle. The IRS has made clear that it will continue to track cryptocurrency transactions, so it’s critical to stay compliant.

Protect Assets from Unauthorized Access

The first step to keeping your digital assets secure in an estate plan is ensuring their protection digitally. Like it or not, cryptocurrency and other digital assets are rapidly becoming key parts of any modern estate. It’s imperative to ensure they cannot be hacked. Underpreparedness leaves assets vulnerable to theft.

Though it primarily creates new hazards for your documents, it prevents your heirs and matrix from easily consistently understanding how to access necessary, too.

Implement Robust Security Protocols

Protecting the new electronic crown jewels requires a strong foundation. Short cuts won’t build a secure foundation for your digital assets, so start with the basics. This involves making an inventory of all digital assets, explaining account credentials, encryption keys, and related documents.

That’s why strong, unique passwords are no longer enough, especially without encryption to protect sensitive data on your behalf. Digital vaults provide invaluable secure storage solutions. They ensure that you can easily access and safeguard crucial documents such as medical records and insurance policies.

Consistently going over security measures can guarantee they remain effective against ever-changing threats.

Use Multi-Signature Wallets

Multi-signature wallets provide additional security by requiring several approvals before a transaction is carried out. This greatly minimizes the risk of unauthorized access, especially in scenarios where credentials may be vulnerable to exposure.

Documenting how you prefer to use and interact with them protects your estate against manageability risks. Accurate documentation of this process is incredibly important, especially considering the burdensome multifactor authentication processes frequently used.

Monitor for Suspicious Activity

Enable account alerts—these can help you identify suspicious activity, like failed login attempts or out-of-the-ordinary transactions. By regularly monitoring transaction histories, you can catch discrepancies as soon as they occur.

When you see something, do something—report suspicious activity immediately. Move quickly to investigate and resolve the issue before your entire asset base is exposed to further risk.

What About NFTs and Other Digital Collectibles?

As our economy becomes increasingly digital, non-fungible tokens (NFTs) have emerged as both a burgeoning asset and prospective estate planning staple. NFTs, including digital art, music, tweets or even virtual real estate, are unique digital assets that generally have great financial and sentimental value to their owners.

Including them as part of an estate plan allows you to have them professionally and carefully maintained and passed down to your heirs.

Include NFTs in Your Inventory

To get started, register each and every NFT you currently own. Provide a thorough description, including the asset type, creators, and any distinguishing features.

Auditors would track the current market value to give the public a realistic view of what their NFT is worth. It’s just as important to name the platforms these assets are housed on, if that’s OpenSea, Rarible, or a different NFT marketplace.

Give them access information, like account login or wallet addresses, while maintaining their security by storing these securely. Including this data in a more general digital asset inventory helps form a one-stop resource for your executor.

Determine NFT Valuation Methods

Because NFT values can be so volatile, know how NFTs are valued. Analyze the current market trends, previous sales of similar assets, and overarching demand in the NFT market.

Write these criteria into your estate plan to instruct your executor on how to evaluate their worth. Of course, regular updates to these valuations will be critical, particularly if the market trends positively or negatively over time.

Specify NFT Transfer Instructions

Create easy-to-follow guidelines for moving NFTs. Provide comprehensive, step-by-step instructions on which platforms to use and what they’ll charge.

Ensure that your executor or the individual you choose is provided with this information so that the transfer can be conducted seamlessly. Ensuring that these assets are protected means having clear and complete documentation.

Collaborate with Professionals

Preparing your estate for a digital first estate involves navigating the intersection of various areas of expertise, particularly in digital estate planning. Cryptocurrency estate planning introduces unique challenges, but by collaborating with a digital assets team, you ensure that your plan is comprehensive and adaptable. Engaging the right professionals fosters interdisciplinary collaboration, allowing you to effectively manage your digital assets.

Assemble a Team of Experts

Begin by finding professionals who are experienced in traditional estate planning and emerging technology like cryptocurrency. This often means estate attorneys, financial advisors and crypto-specialists. Find people who understand digital asset management.

They should be up-to-date on developing laws such as the Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which establishes a fiduciary’s authority to access or control digital assets after a person dies. Conduct ongoing team meetings to refine your estate plan.

These meetings help you meaningfully navigate ownership, access, and the transferability of new digital assets, such as Bitcoin and NFTs. For instance, a crypto specialist can help determine whether assets like online business accounts or digital wallets need specific instructions for continuity or closure.

Seek Legal and Financial Advice

Attorneys and financial advisors can help you connect the dots between your legal obligations and the financial outcomes you want to achieve. Together, they can work with you to integrate your valuable digital assets into your will or trust, assuring that your plan is in harmony with new laws.

These professionals help explain what it means to own cryptocurrency in the context of overall financial plans, including tax planning. As an example, Wealth.com securely stores these sensitive documents and discusses how professional guidance is essential for leveraging and protecting your digital assets.

Consult with Crypto Specialists

Cryptocurrency experts sailed through the murky waters of these and other complicated matters, such as IP rights associated with digital assets. Having them in your corner makes sure your plan evolves along with the industry, safeguarding assets such as domain names or internet-based enterprises.

Experts help you navigate emerging challenges and threats, like family involvement with new technology, for smooth estate management.

Conclusion

In estate planning, going into the future, you’ve got to think of everything. Digital assets—especially crypto and NFTs—are critical parts of that picture today. By taking deliberate steps to prepare, secure, and document these assets, you will help them be protected and made accessible when it matters most. Develop a comprehensive inventory to start on the right foot. By collaborating with trusted professionals, you can enjoy greater peace of mind while avoiding potential headaches down the road.

Your cryptocurrency investments and digital assets merit the same attention as more conventional assets. Plan for the legal, tax and security threats today. In this manner, you craft a robust strategy that evolves with the changing financial environment. Begin incorporating these preparations into your estate planning now. It’s not only a question of keeping up—it’s a question of staying ahead.

Frequently Asked Questions

What is cryptocurrency estate planning?

Cryptocurrency estate planning ensures your digital asset holdings, like Bitcoin and Ethereum, are passed on securely and effectively to your intended heirs after your death. This involves creating a digital estate plan that includes access structuring, legal documents, and clear instructions.

Why should I include crypto in my estate plan?

They can be even more valuable than expected; however, without a digital estate plan, guidance on how to retrieve them may render them worthless. Including digital assets ensures your loved ones can access and manage them properly.

How do I securely store crypto for estate planning?

Utilize hardware wallets or other secure digital storage methods for your digital asset inventory. Store access information in your digital estate plan, ensuring it remains private and secure to prevent unwanted access.

Can I include NFTs in my estate plan?

NFTs are valuable digital assets that should be included in your digital asset inventory. Ensure you provide step-by-step instructions for accessing wallets and marketplaces effectively.

Are there tax implications for inheriting crypto?

If crypto accounts are inherited, they may be subject to estate tax obligations or capital gains tax. It’s essential to consult a tax professional for advice on your digital estate planning needs.

What legal considerations apply to crypto in estate planning?

This is a big one. Have a digital estate plan in place that is legally compliant with federal and state law, and outlines your wishes to prevent costly and time-consuming family fights.

Should I hire a professional for crypto estate planning?

Absolutely, collaborating with an estate planning attorney or a digital assets team can help ensure your digital estate plan protects assets and facilitates legal transfers.