With the rise of digital Currencies or Cryptocurrencies, such as Bitcoin and Ethereum, a unique challenge has emerged in Estate Planning. These digital forms of currency present a new concern: how to incorporate them into a Will and ensure their distribution to beneficiaries is as smooth as possible.
Understanding the ins and outs of cryptocurrency and its storage methods is crucial for Estate Planning. Cryptocurrency is a form of digital or virtual currency that is secured using cryptographic techniques. The owner or a custodian can store it, and the storage can be physical or online. The two popular methods of storage are ‘hot’ and ‘cold wallets.’ A ‘hot wallet’ is connected to the internet and is suitable for everyday transactions. On the other hand, a ‘cold wallet’ is not connected to the internet, offering enhanced security, and is helpful for long-term storage. Both hot and cold wallets use a personal key or password to secure the assets stored on the device or software. This knowledge will empower you to make well-informed decisions about managing your digital assets as part of your Estate Plan.
Given the relative novelty of the cryptocurrency industry, distributing digital assets such as cryptocurrencies by legal arrangements poses unique challenges. Similar to social media and online bank accounts, cryptocurrencies require specific considerations when included in Wills and Estate Planning documents.
It is advisable to engage a lawyer to draft a cryptocurrency or digital currency clause in your Will or Estate Planning document for distribution to beneficiaries. This professional assistance is particularly important as the executor’s access to the cryptocurrency may be restricted if the Will does not explicitly grant the authority, or if the personal key is not obtained. It provides a sense of security and protection for you, as well as clarity and certainty for your executor.
To lessen the executor’s stress, it is best to provide instructions on how the digital currency should be transferred, distributed, archived, sold, or maintained. Additionally, an inventory should be created along with the passwords of all storage devices, including the physical location of a cold wallet.
Creating a separate document specifically for your cryptocurrency, detailing its location, inventory, and passwords, is a proactive step that ensures your wishes regarding your digital assets are met. This practice provides a sense of reassurance and control over the distribution of your cryptocurrency.
If you are looking for assistance regarding the succession-planning of your cryptocurrency and other digital assets, reach out to one of our experienced Wills & Estates lawyers today to start the discussion!
This article is intended for general information purposes only and is not intended to provide legal advice. Readers with concerns about how this affects situations or transactions should obtain the independent review and advice of legal counsel.