by Michael Kling | June 15, 2018
Have you taken the plunge into cryptocurrency? If you invest in the world of Bitcoin, Ethereum, Ripple, Litecoin, etc., you need to consider investing in some unique estate planning to protect these cutting-edge assets when you pass away. Contrary to the familiar process through which we can access traditional asset accounts port-mortem, cryptocurrency accounts require several layers of confidential information to prove ownership, spend, or trade the currency. For preserving and distributing your cryptocurrency according to your wishes, there are several important considerations to address in your estate planning.
Who will access your Private Key? In this virtually unregulated market, your private key (a secure digital code) is used to verify ownership and allow access to digital assets, using multiple passwords and multi-factor authentication to protect unauthorized access. Without knowing the appropriate layers of information, however, it is virtually impossible to access cryptocurrency keys and entire accounts can be lost to cyber-space. To avoid this, you need to leave a detailed record for your fiduciary that will allow him/her to find your accounts, use the private key to gain access, and execute a two-factor authentication process for each account–which generally requires immediate access to your mobile phone.
Who will have “custody” of your Wallets? Cryptocurrencies are traded on their own exchanges, with coins “stored” in either a digital wallet or in your hardware wallet. In actuality, the wallet stores a private key that shows ownership of a public key, which is another digital code tied to a certain amount of your currency. These private and public keys allow you to send and receive coins in your wallet while the wallet acts as a personal ledger of transactions. A hardware wallet is an external, encrypted drive, which stores the keys evidencing your currency ownership. If a hardware wallet is lost or damaged, the assets recorded there may be un-retrievable without a duplicate drive and knowledge of all the security information required to restore the digital record. To take custody of your wallets, your fiduciary should have legal authority to act for you and will need to know user names, passwords, security questions, and have access to your mobile phone.
Use your estate plan to manage and protect the assets. Your estate planning documents should name the fiduciary to act on your behalf and also explain how you want your cryptocurrency distributed. Because this is a relatively new, quickly evolving, and volatile arena, specifically providing your agent with authority over your cryptocurrency as well as the necessary information to access such assets is vital. For significantly wealthy investors, implementing planning techniques tailored to your financial situation can address gift, estate, and income tax issues in a manner that may significantly benefit your estate.
Cryptocurrency investors risk losing their assets at death by failing to properly plan. To ensure your cryptocurrency assets are appropriately incorporated into your estate plan, contact Kling Law Offices for a complimentary consultation regarding passing your digital assets according to your goals and desires.