Not Your Keys, Not Your Crypto – Estate Planning and Cryptocurrencies

Paperwork and pen

Until recently, cryptocurrencies were seen as speculative investments and relegated to niche investors with a penchant for devouring whitepapers. Recently however, due in no small part to the proliferation of easy-to-use applications like Coinbase, Robinhood, Kraken, Cash App and, most recently, Venmo, lowering the barriers to entry for retail investors, the prevalence of cryptocurrency ownership has grown by leaps and bounds. Whether you own Bitcoin, Ethereum, Cardano, or Dogecoin, it is critically important that you coordinate your digital assets with your overall estate plan.

Anyone who has been around the crypto space for any length of time has heard the phrase: “Not your keys, not your crypto.” In the land of cryptocurrencies, your keys are paramount. Due to the private nature of cryptocurrencies and the lack of personal identifiable information tying assets to their owner, without your private key, the digital asset will be impossible to recover. Your private key can manifest as a series of words, without which, you will be unable to access your asset. Depending on the type of cryptocurrency you are holding and, in some cases, the type of wallet containing your asset, your private key may be 12 words, 24 words, or possibly longer. If one of these words is wrong, your asset is effectively locked forever and unable to be recovered. As such, it is critically important that your private key be protected and that this information is properly coordinated with your estate plan.

When coordinating your crypto holdings with your estate plan, much depends upon how the crypto is being stored. Is it in a digital wallet? A paper wallet? Are you keeping it on an exchange? The answer to this question will guide you in ensuring your beneficiaries are able to access and take possession of your digital assets.

In the case of digital wallets, your executor or trustee (hereinafter “personal representative”) must have access to either your private key or, in the case of some cryptocurrencies, simply a spending password. However, extreme caution must be exercised when granting other individuals access to your private key because, as we said, not your keys, not your crypto -so theoretically, your personal representative could
restore your digital wallet on another device and take full control of your assets without your knowledge and leave you with very little recourse.

If you have your crypto in a paper wallet, possession of the printed QR code or private key phrase will be key. Again, the same risks exist when granting a person access to your private keys. Once your personal representative has the paper wallet, they will be able to transfer keys from the paper wallet and distributed as outlined in your estate planning documents. Be sure to exercise caution with paper wallets, as they are easy to lose and the paper/ink can slowly degrade over time.

If you maintain your digital assets on an exchange, access is still key. Unfortunately, most exchanges do not allow for the designation of beneficiary or a transfer on death designation. As a result, your personal representative will need, at a minimum, the login information for your account. This requirement is in addition to the access to any 2FA (two-factor authentication) you have enabled, be it a text to your cellphone number or something more robust like your Google Authenticator app, and your spending password/pin if applicable. Once your personal representative has this information, they will be able transfer your assets to your designated beneficiaries.

With cryptocurrencies, access is effectively possession therefore, it is recommended selecting only the most trustworthy individuals as a personal representative. Best practices dictate you do not list your private keys in either your will or trust. As wills are public documents recorded at the courthouse and the contents of your trust may be disclosed in certain situations (e.g., the refinancing of a home), the potential
for inadvertent disclosure and the loss of your digital asset is substantial. The recommended course of action is to simply reference a secondary document containing your private keys and step by step instructions on how to access your cryptocurrency. This document should be stored in a secure location that is accessible to your personal representative who would have access to after your death.

In short, special care must be taken to coordinate your digital assets with your overall estate plan. Failure to do so can result unnecessary expense and possibly the complete loss of your cryptocurrencies. If you HODL crypto, make sure you safeguard your keys and, as always, if you need assistance, your JGB attorney stands ready to assist.

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