Estate planning for cryptocurrency: How to include crypto assets in your estate plan

Despite how it may seem, cryptocurrency has been around for some time — Bitcoin, the first cryptocurrency, was established more than a decade ago. But within the last several years, the popularity of cryptocurrency has exploded. You may have seen several cryptocurrency commercials during the 2022 Super Bowl, or heard that Crypto.com purchased the naming rights to the LA Lakers arena in 2021.

If you’ve dipped your toes into the new frontier of crypto investing, it’s important to understand that cryptocurrency is different from other investment assets. Cryptocurrencies are a new asset class — industry best practices and government regulation are still emerging. It’s important to think about your assets long-term — including making a plan for what should happen to your assets if you were to pass away.

What is cryptocurrency?

Cryptocurrency, or “crypto,” is a type of digital currency. However, crypto is fundamentally different from digital assets like your online bank or investment account.

With a traditional financial asset, like your bank account, a centralized authority verifies each transaction that occurs (like your bank does when you make a credit card purchase). Crypto, on the other hand, isn’t managed by a centralized authority. Instead, crypto transactions take place on an unchangeable and publicly-accessible ledger called a blockchain. Unlike a centralized authority, the blockchain is verified by a network of computers that independently confirm transactions.

Why is crypto estate planning important?

Since crypto assets are decentralized, it’s extremely important that you include them in your estate plan. Here’s an example of why: Let’s say you forget to list one of your bank accounts in your will. Since your bank account is managed by a centralized authority, your loved ones can work with the bank and a court of law to verify their identity and get access to your account after you pass away.

Crypto assets don’t have the same failsafe because they’re decentralized. The onus is on you, as the crypto owner, to create a plan for your assets and clearly explain how your heirs can access them. If you don’t, there’s no centralized authority to help your loved ones find or gain access to your crypto. Without a proper plan, these digital assets could be lost forever.

How to include your crypto in your estate plan

To make sure your loved ones can access your crypto assets after you pass away, you must include those assets in your estate plan. Here’s how:

1. Create a will or trust

If you don’t already have an estate plan in place, you should create one. You can do this by making a last will and testament or setting up a living trust.

In estate planning, wills and trusts serve a similar purpose: both allow you to decide who should receive your assets and possessions after you pass away. You can also nominate a guardian for your minor children, name a caretaker for your pets, and even leave a gift to charity.

If you need a will, you have the option to make one for free using FreeWill. We also offer free living trusts for California residents.

Funding your trust

If you create a trust, you also have to take the additional step of transferring your assets into the trust (known as “funding” the trust). This includes your crypto assets.

Usually, you would fund a trust by re-titling or re-deeding your property to be in the name of the trust. However, crypto is similar to tangible personal property, like gold or jewelry — there’s no title or deed for these objects, but they’re still valuable items you want to include in your trust.

For these assets, you should write an assignment document stating that you want these assets transferred to your trustee. Here’s some useful language proposed by Britton Law Group:

“I hereby transfer to the Trustee of my living trust, any and all cryptocurrency investments, crypto-coins, tokens, any other form of digital cash, and anything found in or on my cryptocurrency wallets, digitally, on paper, or through online exchanges.”

2. Name a beneficiary for your crypto assets

If you own crypto assets, you need to choose who should inherit them.

As with other assets, like your house or bank account, you’ll do this by naming a beneficiary in your will or trust who should receive your crypto after you die. This can be a family member, friend, or anyone of your choosing. You can even leave your crypto to a favorite charity!

If you want to leave your crypto to charity, you can learn how in our guide to donating to charity in your will. Because crypto is a new asset class, not every charity is able to accept it yet. Before you include your chosen charity in your estate plan, you should confirm with them that they accept crypto donations.

3. Consider naming a digital executor or trustee

You’ve listed your crypto assets in your will and chosen who should get them — great! Now you need to choose an executor (if you created a will) or a trustee (if you created a trust). The people who have these roles are responsible for carrying out the wishes in your estate plan.

Cryptocurrency is a complex topic. It’s possible that the person you trust to carry out the other wishes in your estate plan — like appraising your house and closing your bank accounts — may not be well-versed in crypto. As a result, it may be a good idea to appoint a separate digital executor (or digital trustee) to handle the distribution of your crypto and any other digital assets you own. If you own crypto, it’s wise to choose a digital executor who understands cryptocurrency and how it works.

4. Make a list of your crypto assets and how to access them

It’s not enough to simply list your crypto assets in your estate plan and name a beneficiary for them. You also need to document where your crypto assets are stored, so your loved ones can find them after you pass away.

There are a few different ways you may be storing your crypto:

• Online cryptocurrency exchange: An exchange is a website or third party where you can buy and sell cryptocurrencies. Some crypto exchanges will work with your loved ones to transfer your crypto as long as your loved ones can provide a death certificate, probate documents, and other identification after you pass away. Even so, it’s a good idea to record information about your crypto exchange accounts, just in case.
• Self-custody wallet: A self-custody wallet is a crypto storage solution that’s under your control. There are two types: hot wallets are connected to the internet, allowing for easy trading. MetaMask and Argent are popular hot wallets. Cold wallets are an offline crypto storage solution that aren’t connected to the internet. They’re physical devices that often look like USB drives. Ledger and Trezor are popular cold wallets.

You should keep a detailed record of the type and number of each cryptocurrency you own. For example, say you own $50,000 in Ether and $50,000 in Bitcoin, stored in two different wallets. You need to inform your beneficiaries that these assets exist, as well as provide the exact location (either your wallet or exchange) where they can find those assets. Keep this information stored securely with your other estate planning documents, like your will.

5. Record your crypto keys and keep them in a secure place

Crypto “keys" are a string of randomly generated numbers and letters that act as the password to your crypto wallet.

There are two types of keys:

• A public key, also called a “wallet address,” is how you send and receive crypto. Think of it like your bank account number. You share your public key with others to receive transactions.
• A private key is how you access your crypto wallet. Think of it like your bank account password. It should be kept private.

Your crypto keys are extremely valuable pieces of information — anyone who has both your public and private keys will have access to your wallet and the assets inside it. If you lose or forget your crypto keys, there’s no way to recover them. And if you don’t find a secure way to document your crypto keys before you pass away, it will be impossible for your loved ones to access your crypto.

Think carefully before you entrust your crypto keys to anyone. This information shouldn’t be included in your will or stored digitally, where it could be hacked or stolen. Instead, consider writing your keys on a physical piece of paper and storing them in a safe deposit box, with a trusted family member, or with an attorney. You may even want to engrave your recovery phrase on a metal plate, which is more durable than paper.

6. Revisit and update your estate plan regularly

Your circumstances, goals, and relationships will change over time. That’s why it’s important to regularly review your will and estate planning documents. Experts recommend reviewing and updating your estate plan every three to five years, or any time you have a big life event (like getting married or having a child).

If you create a last will and testament with FreeWill, you can update, download, and reprint your will at any time — always for free.

Protect your crypto assets with an estate plan

After you pass away, your beneficiaries can be granted access to your bank or investment accounts by the centralized authority that manages them. The same isn’t true for crypto.

Because they’re decentralized, crypto assets are fundamentally different than most other assets you own. The responsibility lies solely with you to list where your crypto assets are stored, how to access them, and who should receive them. Without careful planning, your crypto assets could be lost forever.

This is why it’s important to have an estate plan, and to include your crypto assets in it.

You can get started safeguarding your crypto portfolio by making your free will with FreeWill. In as little as 20 minutes, you can have the peace of mind that comes with securing your estate.

If you want to make an impact with your cryptocurrency today, FreeWill has made the process easy with Crypto for Charity, our crypto donation platform. In minutes, you can make a zero-fee gift to support the charities closest to your heart.