Managing crypto assets in your estate plan

Do you hold cryptocurrency? Do you have a family member who’s dabbling in these accounts? Without the access key, these assets can be lost forever. So, it’s important to think about how these accounts will be handled as part of your estate.

Millennials and Gen Z make up 94% of those buying cryptocurrency, according to a study from personal loan company Stilt. At that age, many people haven’t made estate planning a top priority.

But investors at any age need to be able to answer one key question: What happens to my cryptocurrency when I die?

Here are some key considerations:

• Disclosure and access: Cryptocurrency estate planning requires a careful balance between disclosure and accessibility. If family members are not aware that these digital assets exist – or cannot find your access key – these assets may be lost or inaccessible forever. Experts suggest that billions in crypto value have already been lost due to owners who died without sharing their access key.
• Probate: One benefit of digital assets is that your heirs do not need to present a death certificate or other documentation to access these assets. Anyone who has access to your key can access the assets. However, if you use a “cold wallet” method (e.g., a USB drive), that storage device could be considered part of your probate estate and subject to the probate process. If that’s a concern, one way around that issue is to place cold wallets in a safe deposit box owned by an LLC that passes outside of probate.
• Estate taxes: The IRS treats cryptocurrency as property for federal tax purposes. That means federal estate taxes apply. Beneficiaries receive crypto assets on a stepped-up basis at the time of the grantor’s death.

Finally, don’t assume your family members will know how to handle digital assets or convert them into U.S. dollars. Leave instructions on how your crypto exchange works or direct them to your attorney for help.