Cryptocurrency has become an increasingly prevalent part of personal wealth. This new asset class requires traditional tools, like wills and trusts, to be updated to account for the decentralized nature of digital assets. The many stories of people who lost millions, because they didn’t secure their own crypto, should serve as a warning to anyone who wants to bequeath their digital wealth. What to do is addressed in a recent article from Kiplinger, “Heirs Inheriting Crypto? Don’t Make It a Headache for Them.”
Probate is a genuine concern for crypto. Probate is the process of a court validating a will and distributing assets. It often takes a long time and can be expensive. The volatility of crypto makes the lengthy process of probate a serious concern. Delays in probate could create dramatic losses.
Access to cryptocurrency is another challenge. Ownership of digital assets is tied to private keys. A lost key means lost wealth. Since crypto, like Bitcoin or Ethereum, are decentralized and operate on blockchain technology. As a result, there’s no financial or trading institution to call for help. If the access is lost, so is the asset.
With traditional assets, designating beneficiaries is the simplest way to pass assets directly to heirs and skip probate entirely. To do this with crypto, you must log into your account and see if the platform allows beneficiary designations.
Some cryptocurrencies call this a Transfer on Death or TOD form. Fill out the form correctly and keep hard and digital copies for your records. Even if you never print any other documents, you may want to print these and keep them in a secure location.
Digital wallets are also part of crypto estate planning. Digital wallets store private keys required to access, send and receive digital assets. Some digital wallets don’t offer beneficiary designations, so you’ll need to be very diligent about keeping a record of access credentials and secure private keys.
You’ll need to include detailed instructions on accessing a digital wallet, including passwords, recovery phrases, or locations of physical devices, including your phone, tablet, or computer. Consider using an encrypted file or hardware wallet for private keys. Custodial services are available. However, be sure they offer the security you need.
Estate planning attorneys may recommend using a trust for digital assets to be sure that they are managed and transferred without court involvement. Your estate planning attorney will explain how a revocable living trust may help you retain control of your crypto while you are living and provide directions for how you want it to be distributed after your death.
Just as you need to fund the trust by retitling assets for a traditional asset, you’ll need to move your cryptocurrency to a wallet owned by the trust. You may need to create a new wallet under the trust’s name if you can’t transfer funds to an existing wallet.
The trust will need a successor trustee. This trustee must know how private keys and recovery works for digital assets. They’ll oversee keeping your private keys and other information safe and how to access wallets or exchanges holding your wealth.
Your will should not include account numbers or wallet addresses, as they become part of the public record during probate. You’ll need another document to contain the information for your trustee to access the digital assets. If you own crypto or less well-known types of digital assets, providing access information and specific directions will be even more critical.
Speak with an estate planning attorney who has experience with digital assets. They’ll help you protect these assets, so they aren’t lost if the unexpected should occur.
Reference: Kiplinger (Feb. 16, 2025) “Heirs Inheriting Crypto? Don’t Make It a Headache for Them”