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To properly plan for your future and secure your wealth, you need to consider all your assets, including digital ones. Crypto estate planning has emerged in this modern era of investment vehicles, offering a legal framework for digital assets.
Whether you’re trying to follow Montana probate law or hoping to secure wallet access for future generations, you must carefully plan your crypto estate. Below, we’ll outline everything you need to know about crypto estate planning, including key access management, tax implications, and more.
Why Is Cryptocurrency Estate Planning Different From Other Asset Classes?
When explaining cryptocurrency in the context of estate planning, its relationship with these traditional laws and conventional methods, such as bank accounts and tangible safe deposit boxes, becomes quite skewed. Many basic estate planning laws can protect standard asset classes, offering smooth transfers for things like real estate, art, vehicles, or precious metals through your will or trust once you pass. These accounts and physical assets can be transferred to beneficiaries through simple title changes.
Cryptocurrency is not so simple, though. Crypto investors typically use complex digital keys or access codes to store their digital assets.
Beneficiaries will permanently lose access to the wealth if any of these codes are lost during digital asset succession. They cannot just change the passwords. Because of this, crypto estate planning requires careful private key management.
The Value of Cryptocurrency Estate Planning
While you could write down all of your valued pass keys on a napkin in a special drawer that only one beloved family member knows about, what happens if there’s a house fire, you’re robbed, or you both become incapacitated? These might seem like unlikely events, but when dealing with any amount of wealth, you cannot be too careful.
Cryptocurrency estate planning accounts for all potential situations and puts legal frameworks in place to protect your financial interests and your loved ones. You can pass down your accounts to specific beneficiaries and create legal directives for many situations, such as selecting a trusted power of attorney to take over if you become incapacitated. With this level of estate planning, you can prevent issues like probate, sudden tax entanglements, investment failure, and more.
Basic Estate Planning Guidelines for Securing Your Crypto
So, what does crypto estate planning entail? A comprehensive estate plan can be quite complex, but in general, you will likely want to consider the following:
Include Your Crypto Assets in Your Trust and Will With Clear Letters of Instruction
Your will and trust should clearly define your crypto assets and how they will be distributed to your beneficiaries. If you already have these documents established, you will need to revise them to include your cryptocurrency. You might also need to consider establishing a new trust just for your crypto assets, as it will likely include specific information relevant to the digital assets, and separating this document can streamline things for your beneficiaries.
While your will and trust will outline how your assets should be distributed, these documents typically do not define exactly how individuals can access your accounts. You will likely need to create letters of instruction as well with clear guidelines on how beneficiaries can locate private keys, access digital accounts, and manage any other security measures you’ve put in place.
Choose the Right Executor To Manage Your Assets
You must carefully select who will manage your assets and accounts. A trust executor, or trustee, has a fiduciary duty to follow your defined orders and execute account transactions in accordance with your wishes. Your cryptocurrency executor will be in charge of distributing assets, managing accounts, and fulfilling all responsibilities, so you must select someone who understands how cryptocurrency works and is trustworthy enough to fulfill this responsibility.
You can also consider creating various documents that appoint people in charge of your accounts in case you become incapacitated. For example, you can create a power of attorney who would manage your crypto assets and follow your defined wishes in the event that you become incapacitated and can no longer do so yourself.
Store Your Cryptocurrency Carefully
You must be careful about how you set up your cryptocurrency security. Some investors prefer spreading their assets across various platforms and wallets for diversification and added security purposes in case one password is compromised. While this can be beneficial, you do not want to go overboard with security.
We recommend consolidating your confidential information into concise documents and storing them securely. Only your executor, power of attorney, or similarly trusted individuals should have access to this information. You can consider storing password information with a custodian service so it all remains in a central, secure location.
Document Transactions Meticulously for Tax Purposes
Cryptocurrency is treated like personal property when it comes to taxes. To avoid penalties, you must understand the tax implications of crypto inheritance. We recommend working with a tax attorney or financial advisor and keeping clear documentation of all transactions to make future reporting easier and more efficient for your beneficiaries.
Work With an Estate Planning Attorney
Crypto estate planning can involve many nuanced complexities, and it should be tailored to your finances and individual family needs. We recommend working with an experienced attorney for guidance throughout the process.
If your loved one recently left you assets and you’re awaiting the probate process, we can help. Rockpoint Probate Funding offers non-recourse loans for fast funding as you await your settlement. Learn more about probate versus non-probate assets, then contact us at (888) 263-8588 for a free case evaluation.
