Cryptocurrency is a digital asset that has gained significant popularity in recent years. Some investors have made a considerable amount of money through cryptocurrency trading, but what happens to that wealth after death?
Estate planning is important in ensuring the smooth transfer of assets—including digital assets—but the rules surrounding cryptocurrencies can be complex. In this blog post, we’ll discuss what happens to cryptocurrency in probate and the steps you can take to ensure that your digital assets are properly accounted for in your estate plan.
Understanding Cryptocurrency
Before we get into how cryptocurrency fits into estate planning, it's important to understand what these digital assets are. Cryptocurrency is a decentralized digital currency that uses cryptography for security. Transactions are verified through a blockchain, which is a digital ledger of all cryptocurrency transactions. Some popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin.
Because cryptocurrencies are decentralized, they aren’t controlled by any government or financial institution. This means that they are subject to less regulation than traditional assets like cash or stocks. That said, they are not free from regulation, so it’s important to ensure you follow all relevant legal processes when you want to ensure an uncomplicated transfer after your death.
Cryptocurrency in Probate
So, what happens to cryptocurrency after death? The answer lies in the probate process, which is the legal process of distributing a deceased person's assets. Cryptocurrency is treated like any other asset in probate, but there are some unique challenges that come with it.
For one, cryptocurrencies are intangible assets that can be stored on digital wallets or exchanges. If you don't have access to the private keys or login information for these wallets or accounts, your cryptocurrency could be lost forever. This means that anyone who intends to put cryptocurrency in their estate plan should take care to ensure to include all information their executor will need to access these funds. Additionally, cryptocurrencies are subject to market fluctuations, which can affect their value. Executors must stay up to date with the market value of any cryptocurrency in the estate.
How to Include Cryptocurrency in Your Estate Plan
You must include your crypto assets in your estate plan to protect and transfer them to your beneficiaries. Start by taking an inventory of all your cryptocurrency accounts and digital wallets. Keep a record of your private keys, login information, and any other relevant information for each account. You may want to consider storing this information in a secure location, like a safe deposit box or encrypted digital storage. Be sure to update this inventory regularly.
All of this is necessary whether you have a trust or only a will; in either case, your estate’s executor will need access to your cryptocurrency to create an accurate accounting and perform the transfer to your beneficiaries.
Working with an Estate Planning Attorney
As with any estate planning, it's highly recommended to work with an estate planning attorney to ensure that your documents are legally sound and reflect your wishes. Your attorney can help you create a plan that covers all your assets, including cryptocurrencies. They can also advise you on the best way to structure your plan to minimize taxes and ensure a smooth transfer of assets. Remember to update your estate plan regularly to reflect any changes in your assets or beneficiaries.
The Law Office of Mitchell A. Port can provide the legal support you need. Contact us today to learn more.
FAQs
Cryptocurrencies are assets, so they're subject to probate just like anything else. If there is a will, when a person dies, their cryptocurrency is passed on to their designated beneficiaries.
How is cryptocurrency used in real estate? ›
Advantages of Crypto Real Estate Finance
Crypto loans for real estate are generally used in two ways: to use digital assets to create liquidity to buy property (residential, a holiday home, investment property) or as a mechanism to purchase property to diversify a portfolio.
How do you pass crypto to heirs? ›
- How to leave cryptocurrency to your heirs. Creating an estate plan is a smart and responsible step to take. ...
- Create a digital will. Consider creating a digital will that specifically addresses your crypto assets. ...
- Store your private keys securely. ...
- Use hardware wallets. ...
- Use third-party services.
Identifcation of the account, account ownership, and value of the total assets should be sufficient in most cases. If an account contains a liability, disclose that liability so that net asset value can be determined. The best evidence is to provide a formal valuation from a valuation professional or an accountant.
What happens to crypto if the owner dies? ›
In short, if a crypto investor dies without a will and without providing instructions on how to access their crypto assets, those assets are lost forever.
Should I put my crypto in a trust? ›
The advantages of leaving cryptocurrency in a trust, include: Prevents the loss of your cryptocurrency after you die. Keeps cryptocurrency out of probate, saving your loved ones money and time. Reduces vulnerability to scammers and hackers when held in cold storage.
How does crypto turn into real money? ›
To withdraw money from crypto to your bank account, first, sell your cryptocurrency on a crypto exchange that supports fiat currency withdrawals (like Mudrex). Link your bank account to the exchange, initiate a withdrawal request, and the converted funds should arrive in your bank account within a few business days.
Where does the real money go when you buy crypto? ›
When you invest in Bitcoin or cryptocurrency, you're essentially buying digital assets that can increase or decrease in value. The money you invest goes into buying these digital coins, and the value fluctuates based on market demand.
How do you pay for a house with crypto? ›
Most escrow companies do not directly accept cryptocurrency. To buy a home with crypto, you can leverage RealOpen's crypto-to-fiat service to convert your crypto into fiat en route to escrow. This allows you to fund a traditional cash purchase with your crypto funds.
How do I leave crypto to a loved one? ›
You could write down the details and store them in a safe-deposit box, for example. You can also create a multi-signature wallet to allow others to access an account when you die. Ideally, write your access guide assuming your beneficiaries don't know anything about cryptocurrency or your accounts.
Getting access to a crypto portfolio
The only funds you can access without a key are the ones your loved one has placed with a third-party exchange. The two most commonly used cryptocurrency exchanges are Coinbase and Gemini—both of which have a process in place for helping families who have lost loved ones.
Does crypto form part of your estate? ›
Crypto currency is an asset, just like any other and as such, is taxable. Gifting crypto currency to your children or anyone other than your spouse or civil partner, may result in you generating a capital gain on their disposal. There are also inheritance tax implications, should you die within 7 years of the transfer.
Do you have to report crypto to the IRS? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
How to find out if someone has cryptocurrency? ›
Bank/Credit Card Statements - While there has been limited usage of cryptocurrency for actual commercial transactions, the majority of individuals obtain cryptocurrency through purchases on an exchange. Bank statements might show payments to (or receipts from) cryptocurrency exchange companies.
What does proof of ownership of Cryptocurrencies require? ›
To prove ownership of a cryptocurrency wallet, you typically sign a message with the wallet's private key. This involves creating a digital signature that can be verified using the public key associated with the wallet. This process demonstrates control over the wallet without exposing private keys.
Can you inherit cryptocurrency? ›
Yes. You can list your crypto assets in your will. Cryptocurrencies are not considered traditional assets like a bank account. Instead, crypto investments are considered personal property like a car or real estate.
Do stocks go through probate? ›
If there is no will or trust, or no named beneficiary for the investment accounts, then stocks will pass through the probate process, where the court will determine who will receive either the accounts or the liquidated assets through intestate succession laws.
