Just about everything has moved into the digital word. This includes financial assets like cryptocurrency, which has become a very popular investment in recent years. It’s not quite as simple to include cryptocurrency and other digital assets in your Will as traditional assets like real property and bank accounts. Planning ahead now could avoid a disaster for your loved ones later.
What are Cryptocurrency and NFTs?
Digital assets are becoming more the norm. These are online accounts (i.e., social media, financial), files, websites you own, cloud storage, and pictures. You can add digital money and art, like cryptocurrency and NFTs respectively, to that list. Because of the digital explosion, it is more important than ever to create a digital legacy plan to protect your digital assets.
Related Article: Make Your Digital Legacy Plan in 5 Easy Steps
Bitcoin, Ethereum, and Litecoin are well-known forms of cryptocurrency – or crypto as it’s commonly called – that can be bought, sold, and invested. These are virtual currency based on blockchain technology – a computer network database that collects and stores information in a series of blocks. The crypto market is valued at about $2 trillion and is expected to grow exponentially over the next decade.
Cryptocurrency is decentralized, meaning it is not backed or regulated by any financial or government entity. It’s set up purposely that way so that the industry is a totally free market and not subject to collapse due to a single financial failure. Money transfers are cheaper and quicker than traditional methods and cryptocurrency reportedly is not subject to hacking and counterfeiting.
However, cryptocurrency is volatile and has wide price swings. Some investors make a killing while others can lose their shirts. According to Coinbase, Bitcoin reached a high value of $17,738 in December 2017 then plummeted to $7,575 several months later.
Another digital asset gaining hold are NFTs (non-fungible tokens). According to TradingPlatforms, NFTs’ values have skyrocketed from $100 million in 2020 to more than $21 billion in 2021.
NFTs represent ownership of a unique digital asset, like digital art. Instead of buying a masterpiece you can hang on your wall, you’re getting a digital file, like a jpeg. Think of it as buying the property rights rather than a physical object. Other examples of NFTs are music and videos. NFTs cannot be exchanged for another of the same type or value.
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Crypto assets are bought and sold through online exchanges like Coinbase, Gemini, and Robinhood. They are typically deposited and securely stored in a digital wallet on a smartphone app like PayPal, Apple Pay, Venmo, Samsung Pay, or a computer.
There are “hot” and “cold” wallets. A hot wallet is connected to the internet like the ones listed above. A cold wallet is an offline device like a USB, thumb drive, or hard drive. Fiduciaries, like a bank or trustee, can be utilized to oversee cryptocurrency.
NFTs and crypto owners have what is called a private key, basically a password, that is typically a 64-digit string of randomly selected letters and numbers used to access the crypto or NFT. If this key is lost or your heirs don’t have it, there is no way to access the assets. But it’s important to note that anyone who has this key is essentially its owner; so it’s not something you want to list in a document that becomes public record – your Will. We’ll get into that later.
Cryptocurrency vs. Traditional Assets
Traditional assets include bank and other financial accounts, stocks, and real property such as your homes and vehicles. In the case of banks and investments, these are regulated and there is a physical record of the asset. The owner of these has full access and control.
So, if you die, your personal representative – also known as an executor – would need to produce a death certificate and a letter of testamentary to access and control your traditional assets. The letter of testamentary is issued by the probate court and gives legal authority to the executor to act on your behalf. This includes handling and accessing all financial matters associated with your estate.
Related Article: Out-of-State Assets and Your Estate Plan
When it comes to cryptocurrency, your personal representative must have the private key to access and transfer funds to beneficiaries named in the Will. Cryptocurrency does not have any names on the account or a title document. There is no provision for transfer on death for the crypto.
Your executor can have a death certificate, the Will, and all the legal documents needed, but if he or she does not have that private key, the crypto would be lost forever.
Cryptocurrency In Your Will
A 2020 survey by the Cremation Institute found:
- That while 89% of cryptocurrency owners worry about losing their crypto assets, only 23% actually have a plan to protect them.
- 35% of Millennials (26- to 40-year-olds) and 59% of Generation Z (18- to 25-year-olds) have no plan in place for transferring their crypto upon their passing.
- Cryptocurrency investors are 4 times less likely to use a Will.
- Women are 39% more likely to pass on their digital assets than men.
Related Article: The Complete Guide to Estate Planning for Women
Traditional assets are pretty straightforward when it comes to listing them in a supplemental document (asset list) to your Will, so that they will be bequeathed to your named beneficiaries.
For crypto, a much more detailed approach must be taken to ensure they transfer to your loved ones when you pass, while protecting the security of your digital asset. Making just a blanket authorization in your Will to access this asset is not enough.
Here is a list of what you need to do:
Reference Your Cryptocurrency
In your Will, you may want to state that you bequeath your cryptocurrency and name the beneficiaries to whom you are leaving it. You also do not have to list it as long as your personal representative is aware of it; these assets are covered by the residuary clause of a will. In any event, DO NOT list your private key or any passwords. Since a Will becomes a public document upon your passing, you should never list any account access information in it. We’ll get to how your executor and loved ones can access the crypto in a bit.
Note Access Documents & Info
Notate in the Will that you have a memorandum or a separate document that lists the cryptocurrency and private keys. Ensure that your Personal Representative knows where you store your asset inventory, including cryptocurrency and private keys. Gentreo customers have the advantage of the Gentreo Digital Family Vault and team sharing feature, which makes it easy to maintain and share this important information.
Create a Document That Outlines Access Information
Create this separate document to provide specific information about the cryptocurrency you own:
- List the types (Bitcoin, etc.)
- Where the assets are stored (e.g., digital wallets, mobile device)
- How and where to locate both the assets and the private keys (never list your private key, itself – it’s safest stored in a “cold” wallet like a USB drive kept in a safe)
- Passwords, usernames, PINS for the digital wallets
- URLs and websites of exchanges (Coinbase, Gemini, Robinhood)
How to Include NFTs in Your Will
The method of including NFTs in your Will is similar to cryptocurrency.
Bequeathing the NFTs
As with crypto, state in your Will your intentions of leaving your NFTs to beneficiaries named in the Will. Include separate documents detailing the tokens and where they are located.
List Your NFTs
On a document, NOT in your Will, list all the NFTs you own. Include a description of each token and its current estimated value. It’s important to regularly adjust this list to reflect what you currently own and its value, as your personal representative may not have any knowledge of digital asset values.
Note How to Find Private Keys & Passwords
Create a document to list your private keys to each token and passwords or PINS to the digital wallets or the places you store the NFTs. Also notate where the tokens can be found.
The NFTs list and access info document should be stored with the Will.
Securely Storing Your Will and Documents
The best place to store your Will, estate plan, and related documents is in the Gentreo Digital Family Vault. Everything is in one place and can be quickly accessed by you and those you choose upon your passing. Have peace of mind knowing your documents are safe.
Choosing a Power of Attorney
You should consider having a Power of Attorney who would be able to manage your digital assets if you became ill or incapacitated. This person would have legal powers to act on your behalf. Your Power of Attorney would need the access information to the NFTs and crypto accounts.
Related Article: What Does it Mean to Give Power of Attorney
Updating Your Digital Asset List
As you acquire or sell cryptocurrency and other digital assets, you need to update your list. If the information is not updated and something happens to you, your loved ones or representatives will be unable to access the new accounts.
Dying Without a Will
If you die without a Will, the state determines per its laws of intestacy how to divide your estate, including your digital assets. This could leave loved ones you intended to bequeath assets out in the cold.
Let Gentreo Help You Protect Your Digital Assets
As you can see, digital assets can be complicated when it comes to estate planning. Gentreo is here to help you create the right documents you need to ensure your digital assets will easily pass to the next generation. We have a third party network of licensed estate planning attorneys in all 50 states you can connect with to give you state-specific advice. And our coaches are always ready to get you started and guide you through the process of creating your Will and other estate planning documents.