Cryptocurrency (e.g., Bitcoin, Litecoin, Cardano, Ethereum, Ripple (XRP), etc.) is increasing in popularity as a form of a financial investment and investors are finding high returns. Consequently, cryptocurrency investors are seeking to pass these digital assets on to beneficiaries after death. The very features that make crypto attractive – anonymity and decentralization – can also increase the risk of your executor losing access to your crypto holdings. That is a completely avoidable problem solved by some advance planning.
CRYPTOCURRENCY ASSETS ARE DIFFERENT THAN TRADITIONAL ASSETS
Despite its name, cryptocurrency isn’t treated the same as your bank account, insurance benefits, or investment assets. Traditional assets have a physical record of currency such as a bank account. For example, if you were to leave the flat money in your bank account in your will to a beneficiary, the person handling your estate (your executor) would be required to produce an original death certificate and letters of testamentary in order to take control of the bank account once you’ve died.
In the case of crypto, once you’ve passed, it is not required to show proof of death or power of attorney. Cryptocurrency requires the executor to have the decedent’s passcodes to access and transfer the cryptocurrency account for estate administration purposes. It is essential that you trust who you name as your fiduciary because the fiduciary could use the cryptocurrency passcodes to access and manage your cryptocurrency account with very little oversight.
YOUR CRYPTO COULD BE WORTH ZERO IN AN INSTANT
Digital wallets for crypto currency don’t have account names or titles. They aren’t registered with a bank or financial institution. Access to digital wallets is controlled by a private key. A digital wallet worth $100,000 (or any other number) without the private key is useless. There is no “change password” option, no 1-800 number to call, and no recourse against a digital currency exchange to recover a lost key. Sudden death or incapacity without proper planning can render an investor’s digital wealth WORTHLESS instantaneously.
MATTHEW MELLON AND HIS LOST $500 MILLION CRYPTOCURRENCY
Matthew Mellon was a prolific crypto investor and especially noted for his investments in Ripple and XRF. Mellon was a direct descendant of the founder of the Mellon Bank, and Anthony Joseph Drexel, a banker whose investment firm was a precursor to Drexel Burnham Lambert. Mellon invested early on in XRP and his XRP was eventually is worth around $1 billion.
Mellon died unexpectedly at age 54 in 2018. Unfortunately, he stored his private keys in cold wallets that were distributed in various banks across the country. He never told anyone which banks and where the wallets were stored or what the private keys were. As of 2022, there have been no reports of the wallets or keys being located.
CREATE A DIGITAL ASSET INSTRUCTION LETTER WITH PASSCODES, PASSWORDS AND PINS
When a Will goes through probate it becomes public record. Since digital assets are only accessed through passcodes, passwords and PINs, for security purposes, this sensitive information should not be included in your Will should it go through probate. A digital asset instruction letter (“DAIL”) is a separate document that is referenced in your Will but is not part of the Will or subject to public record. DAILs can also be changed at any point in time. So, should you change access information to your digital assets, this can be changed in the DAIL without going through the hassle and legal requirements of changing your Will.
We recommend creating a DAIL that includes:
A list of digital wallets and where they are stored (e.g., computer, smartphone app, physical device)
Website names and URLs to any exchange used for buying and selling cryptocurrency
Username, passcodes, passwords, PINs and keys needed to gain login access to the digital wallets, exchanges, websites, accounts and devices associated with your digital assets
Once the DAIL is complete it can reside with your Will or trust in a separate location.
CONTACT FIFFIK LAW GROUP TO LEARN MORE ABOUT INCLUDING CRYPTOCURRENCY IN YOUR ESTATE PLAN
Adding cryptocurrency to your estate plan is a delicate and technical job and is best to be accomplished by an attorney well-versed in different types of cryptocurrencies and digital wallets as well as estate planning and asset protection. The experienced estate planning attorneys at Fiffik Law Group can assist you in incorporating your cryptocurrency into your existing Will or creating a new Will or Trust with the digital financial assets and physical assets you would like to pass on. Contact us today.