In today’s digital world, estate planning has evolved into incorporating cryptocurrency investments and how they will be passed onto loved ones in the future.
In fact, 1 in 10 people are investing in crypto assets (Bitcoin, Ripple, or Ethereum), according to CNBC. But are these cryptocurrency investors thinking ahead to protect their estate planning? More stats may prove otherwise, as 2 out of 3 adults do not even have a will in place, which is even more challenging when the crypto asset investor passes away.
We will explore all of the ways to protect any cryptocurrency assets when it comes to estate and family planning.
What is Bitcoin and how Does it Work?
Bitcoin, one of the most popular cryptocurrencies, has attracted millions of investors to these digital assets, with many finding financial gain.
Anchoring the Bitcoin is its technology, the blockchain, a sort of shared public ledger spreadsheet that is duplicated thousands of times across a network of computers.
Blockchains have the potential to be the future of how we all perform contracts, record deeds, keep medical records, and pay for goods and services. It represents a secure, cost-efficient way to complete transactions, with each entry in the ledger cryptographically verified and signed to prevent fraud.
To further break down Bitcoin’s security measures, it is stored in a digital wallet and locked and secured by a 64-digit private key and assigned a public Bitcoin address, like an email address, which is used as a destination to transfer or send Bitcoin.
Benefits of Using a Trust to Protect Cryptocurrencies
Cryptocurrency assets open the door to a whole new digital world in investments. And, when it comes to estate planning laws, because of its extreme security, locked and sealed in a digital wallet, investors need to take the extra step to leave instructions and legal authorizations to access it before they pass away.
One of the ways to protect these hard-earned cryptocurrencies is to transfer them into a trust for beneficiaries. Here are a few advantages of using a trust for digital assets like this in more detail:
Probate is Avoided
No matter the type of asset an individual has, it is beneficial to place it in a trust to avoid probate. This is because, when someone passes away, their estate passes through probate court, a process that could take several years for loved ones left behind to retrieve the assets and cost them up to 7 percent of the estate – just in court fees.
It is also critical to transfer cryptocurrency assets to a trust, so the value is not affected by the ups and downs of the market. Appointed trustees should be left with detailed instructions on how to access the cryptocurrency digital wallet to be properly distributed or liquidated to beneficiaries without delay.
Crypto Assets are Easier to Find
Because people tend to casually invest in cryptocurrency, they may never mention it to their loved ones. The danger in that is that there could be valuable assets sitting out in the digital world after they pass away that are nearly impossible for loved ones to access because of those brilliant walls of security.
If cryptocurrencies are placed in a trust, family members will find clear documentation; even a separate document can be created, if preferred, for more privacy that details the instructions to access and info on the crypto assets themselves for a trustee to pass along to beneficiaries.
They Remain Private
Placing crypto assets in a trust also gives the owner privacy, versus the estate’s information being released as part of public record during probate court. This security is beneficial between the investor and his or her loved ones because:
- Larger estates may draw interest from the public eye.
- Hackers could uncover the crypto assets, leaving loved ones without the inheritance.
- Loved ones left behind may not be familiar with keeping the crypto assets secure and away from being targeted, which can more easily expose them to hackers’ possible ploys.
There is More Control
Transferring any crypto assets into a trust gives the investor more overall control over what happens to them post-mortem. These beneficial control options include:
- Which assets the crypto asset investor would like to distribute to whom, when, and how much.
- Any special stipulations instructed to the beneficiaries, such as distribution only after the children have graduated from college, started their first job, or achieved any other future requirement.
- Any special stipulations that connect to cryptocurrency, like requiring the trustee to supervise the asset and only sell when it has the best value in the current market, not prematurely.
Risks of Estate Planning and Cryptocurrencies Without a Trust
Because of many the unknowns in cryptocurrency estate planning, there are several risks and challenges if these crypto assets are not protected by a trust, including:
- There is no personal identification (name, Social security number, certificate of title) connected to the Bitcoin cryptocurrency, so family members may not be able to discover that the descendent even had any of these digital assets.
- The crypto assets may also be overlooked because they can be virtually stored on a USB, a phone, a hard drive, or any source that stores data.
- Although a Bitcoin wallet has a public address, any Bitcoin transactions require the owner’s private key before funds can be extracted.
- Because of the Bitcoin wallet, there is no Revocable Living Trust estate plan that allows the owner to transfer crypto assets into a trust after their passing.
Protect Cryptocurrencies with a Legally Protected Estate Plan
Forward-thinking investors need to pass their cryptocurrencies on to their heirs successfully with a proper estate plan guided by an expert attorney experienced in estate planning to ensure their digital wallet is protected. This could range from a detailed letter placed in a safety deposit box, to a trust, to a will, or more legal options. We are here to work through an estate plan that is best for our clients, just like we have for decades.