Navigate the world of cryptocurrency in estate planning with our detailed guide. Learn how to protect your assets and ensure a smooth transition for your heirs.
Around $140 billion worth of Bitcoin—around 20% of the total supply—may be permanently lost, according to analytics firm Chainalysis. Inadequate estate planning is one reason behind this.
Without planning ahead, your cryptocurrency assets could become lost or inaccessible to your heirs, leading to unnecessary financial loss.
The decentralised nature of crypto, along with the need for secure management of private keys and wallets, makes it important to have a clear estate plan in place. Without it, your heirs may struggle to access your digital wealth.
In this guide, you’ll find the essential steps to protect your crypto assets and ensure they can be easily passed on.
Why You Need to Include Cryptocurrency in Your Estate Plan
Cryptocurrency offers a unique set of challenges compared to traditional assets. Estate planning for digital assets like Bitcoin or Ethereum is crucial to ensuring that these assets are properly transferred and not lost forever.
Here's why:
Protecting Your Wealth for Future Generations
If you don’t include your cryptocurrency in your estate plan, you risk your heirs losing access to this wealth. Unlike traditional financial assets, there are no banks or central authorities to help with recovering lost crypto if access information is lost. Proper estate planning ensures your cryptocurrency is passed on securely.
Legal and Tax Benefits
Including cryptocurrency in your estate plan allows you to mitigate legal and tax complications. Estate tax laws differ across jurisdictions, but unaddressed cryptocurrency can create unnecessary tax burdens on your heirs. Strategic planning may reduce or even eliminate certain tax liabilities.
Ensuring Your Crypto Assets Go to the Right Person
Without an estate plan, there’s no guarantee your assets will go to the intended beneficiaries. Cryptocurrency can only be accessed with the private keys, so leaving no clear guidance could leave heirs locked out. An estate plan ensures your crypto goes to the right people without the risk of losing access.
Read more: Crypto vs Stocks: Which Is The Better Investment?
How to Securely Pass On Cryptocurrency in Estate Planning
Securing your crypto assets for future generations requires planning and attention to detail. Here's a step-by-step guide to make sure your heirs can access and manage your cryptocurrency.
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Inventory Your Assets: Make a list of all your cryptocurrencies, including the amounts, wallet addresses, and platforms (e.g., exchanges, cold storage).
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Identify Storage Solutions: Specify where your assets are stored. Are they in a hardware wallet, a custodial service, or a hot wallet?
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List Private Keys and Passwords: These are critical for accessing your cryptocurrency. Ensure you have a secure method of sharing this information with your heirs.
Safeguarding Private Keys, Wallets, and Passwords for Your Heirs
A major challenge in passing on cryptocurrency is the security of private keys and passwords. You need to strike a balance between protecting your keys from theft and ensuring your heirs have access when needed. One solution is to use a digital vault or other secure storage systems that allow you to store passwords and keys. You can also create a multi-signature wallet, where multiple keys are required to access the funds, adding an extra layer of security.
Read more: How To Store Bitcoin - Everything You Need To Know
Ask The Expert: Advice from Mauricio Di Bartolomeo, Ledn Co-founder and CSO
Estate planning is a massive blind spot for a lot of crypto holders. Many are great at securing their crypto, even going so far as to split up seed phrases and stash parts across different locations worldwide. But while this might seem like a foolproof way to protect your crypto, it can actually create huge problems for your family or heirs if they don’t know how to access it.
The first step is making sure you’ve got a will that outlines exactly how to access your Bitcoin. You’ll want to provide specific details on where seed phrases or private keys are stored and how they can be retrieved. Without these instructions, all that security won’t mean much for the next generation.
Some platforms, like Ledn, let you add beneficiaries right on your account. This feature makes things a lot smoother, especially when it lines up with what’s in your will. For example, Ledn’s beneficiary option lets you designate who will receive your Bitcoin, making it crystal clear for your estate.
Some platforms, like Casa, offer tools specifically for Bitcoin inheritance. These solutions are designed to make sure your heirs can get to your Bitcoin easily and securely, even if they’re not crypto-savvy.
So if you’re serious about passing on your Bitcoin, make sure you’ve got a solid will, a plan for custody, and take advantage of platforms with inheritance features.
For more tips from Mauricio, follow him on Twitter.
Legal and Tax Considerations for Cryptocurrency in Estate Planning
Cryptocurrency adds complexity to estate planning from both legal and tax perspectives. Here are key considerations:
Capital Gains, Estate Taxes, and Inheritance Laws
When you pass cryptocurrency to your heirs, they may be subject to capital gains tax if certain conditions are met in accordance with your applicable tax regime. Additionally, cryptocurrency is often subject to estate taxes, which vary by jurisdiction. Estate planning helps you to understand and minimize these tax implications, preventing your heirs from facing unexpected tax burdens.
Cryptocurrency Taxation Laws You Need to Know
Taxation on cryptocurrency depends on your place of tax residence. Many countries treat cryptocurrency as property, meaning gains are subject to capital gains tax. In estate planning, understanding how your country handles digital assets is key for optimizing tax efficiency. Consulting with a legal or tax expert will help you best understand specific requirements.
Read more: How to Earn Interest on Bitcoin - Actionable Guide
Creating a Cryptocurrency Estate Plan: Key Steps to Take
Setting up an estate plan for cryptocurrency requires some planning. Here's a guide to the key steps involved.
Inventory Your Cryptocurrency Assets
First, create a comprehensive inventory of all your cryptocurrency assets. This list should include wallet addresses, platforms, and the total value of each asset.
Create a Digital Will
A traditional will might not be enough for cryptocurrency. You'll need to create a digital will that specifies how your crypto assets should be managed and who has access. Be sure to outline how your heirs will gain access to the private keys.
Select a Trustworthy Executor or Trustee for Your Crypto
Choose an executor or trustee who is well-versed in cryptocurrency and can manage the technical aspects of transferring the assets. This person must also understand the legal responsibilities involved in handling digital assets.
Name Beneficiaries
Clearly name the beneficiaries for your cryptocurrency. Make sure they are aware of their responsibilities and know how to access the assets.
Tools and Best Practices for Managing Crypto in Estate Planning
The following tools and tips can help you manage your crypto assets effectively for estate planning:
Digital Vaults, Cold Storage, and Custodial Solutions
Digital vaults are a secure way to store private keys and passwords. Cold storage—storing your cryptocurrency offline—is another secure method, particularly for long-term holders. Custodial services offer the advantage of professional management but require trust in third parties.
Smart Contracts
Smart contracts can automate the transfer of cryptocurrency upon your death. These self-executing contracts are programmed to transfer assets based on pre-determined conditions, reducing the need for intermediaries.
Multi-Signature Wallets
A multi-signature wallet requires multiple keys to access funds, providing additional security. This is especially useful in estate planning to ensure that one lost key doesn’t prevent access to your crypto assets.
Avoiding Common Mistakes in Cryptocurrency Estate Planning
Estate planning for cryptocurrency can be complex. Here are some common pitfalls to avoid:
Failing to Properly Document Access to Crypto
Without clear documentation on how to access your cryptocurrency, your heirs might never retrieve it. Ensure you leave detailed instructions.
Not Keeping Your Estate Plan Updated with New Crypto Holdings
Cryptocurrency portfolios change frequently. Make sure your estate plan is updated regularly to reflect new assets or changes in your holdings.
Keeping Your Private Keys Completely Hidden or Inaccessible
It’s important to safeguard your private keys, but keeping them entirely inaccessible can result in them being lost forever. A balanced approach between security and access is critical.
Estate Planning For Cryptocurrency FAQs
How do you put cryptocurrency in a will?
You can include cryptocurrency in your will by specifying the assets and providing instructions on how heirs can access them. This includes leaving details on private keys, passwords, and any wallets.
Does cryptocurrency go through probate?
Yes, cryptocurrency can go through probate. However, this can cause delays and complications, particularly if private keys and passwords are not readily available.
Can trusts hold cryptocurrency?
Yes, a trust can hold cryptocurrency. You can designate the trust as the owner of your digital assets, providing instructions on managing and distributing them upon your death.
Is cryptocurrency subject to estate tax?
Yes, cryptocurrency is often subject to estate tax, just like other assets. The tax treatment varies by jurisdiction, so consult with a tax professional to understand local laws.
Conclusion
Like any asset class, cryptocurrency requires careful estate planning. Without proper measures, digital assets can be lost or create unnecessary complications for your heirs. By including cryptocurrency in your estate plan, you ensure that your wealth is protected and transferred securely to the next generation.
Why Use Ledn To Hold Your Crypto?
Ledn offers a range of financial products designed to meet the diverse needs of crypto holders.
Read more: How to Use Ledn to Grow Digital Wealth
Whether you are looking for an alternative to other storage solutions, interest-earning accounts, fast and fee-free trading, or access to liquidity through Bitcoin-backed Loans, Ledn is a reliable platform to grow and protect your digital wealth for future generations. Open an account with Ledn today to HODL while you earn.
Disclaimer
This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.
