What happens to your crypto when you die?

In the past few years, cryptocurrency assets (like Bitcoin, Ether, and Dogecoin) have become a popular investment vehicle. Crypto’s emphasis on security and anonymity attracted many early investors. But it comes with a catch: the onus is completely on you, as the crypto owner, to keep track of these assets.

The internet is filled with inquiries from people who are trying to access their deceased family member’s crypto accounts. And there are stories, like this one from The New York Times, of people who can’t access their millions of dollars in crypto assets because they forgot the password to their wallet. So, what is it about crypto that makes it so difficult to retrieve?

Cryptocurrencies, often referred to as “crypto,” are a decentralized digital currency. Since they’re not managed by a centralized authority, they’re a different kind of asset than the dollars in your bank or brokerage accounts. And this makes it even more important to clearly state what you want to happen to them if you were to pass away.

What is cryptocurrency?

Cryptocurrency is a type of digital currency that lives on an unchangeable public ledger called a blockchain. Blockchains are decentralized, meaning each transaction made on the blockchain is independently verified by a digital network of computers. This is very different from, say, a bank, which is a centralized authority that monitors and confirms all transactions made by its customers.

Because crypto assets are decentralized, there isn’t a centralized authority that can grant access to them in the event you pass away. This means it’s your responsibility to leave instructions for your loved ones about how to access your crypto.

Crypto is comparable to valuable physical assets like diamonds, precious metals, or cash — anyone who has access to them can use them. This can create a unique problem for crypto owners: You need to keep your crypto secure during your lifetime, but also need to leave a paper trail so your loved ones can access these assets once you pass away.

What happens to your crypto when you die?

The short answer is: It depends on how well you prepared and how your crypto is stored.

When you pass away, most of your property will go through a court-supervised legal process called probate. During probate, a local court appoints someone (usually a relative) to manage your estate and distribute your assets to your heirs.

Crypto is a “probate asset,” meaning it needs to go through the probate process before it can be transferred to your heirs. (Note: You can’t give someone the password to your crypto to transfer ownership to them.) The same is true for other financial assets you own, like your investment and bank accounts. But crypto differs from traditional financial assets in an important way: They aren’t managed by a centralized institution.

Let’s say you have an investment account at Charles Schwab. When you pass away, you leave the account to your daughter in your will. She can reach out to Charles Schwab and work with them to get the account transferred into her name.

But with crypto, there’s no centralized authority, like Charles Schwab, that manages your assets. If you leave your crypto to your daughter in your estate plan but you don’t tell her where it is or how to access it, there may be no way for her to retrieve those assets.

If your crypto is stored on an online exchange, your loved ones may be able to work with them to access your account after you pass away. But for that to happen, your loved ones need to know the account exists in the first place. And if you stored your crypto on a self-custody wallet, the assets still exist but could be inaccessible, potentially lost forever.

To keep this from happening, you should take two important steps to protect your crypto:

1. Create an estate plan
2. Make a detailed list of each crypto asset you own and where it’s located

The two-step process to make a plan for your crypto

1. Create a valid estate plan

All American adults, regardless of age, health, or wealth, should have an estate plan — including either a last will and testament or 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. There are many benefits to having an estate plan — it can speed up the probate process and provide clarity and comfort to your loved ones. It’s also one of the most important steps you can take to protect and pass on your cryptocurrencies.

In your estate plan, you’ll list all of your assets and property — like your home, vehicles, financial accounts, and cryptocurrencies — and choose someone to receive each asset. This could be a person, like a friend or family member, or an organization, like a favorite charity.

If you don’t have an estate plan, it’s easy to create one. FreeWill has a free online will-maker that lets you create your will in just 20 minutes. If your estate is more complicated, you can instead create a revocable living trust at a much cheaper rate than hiring an attorney.

Not sure which type of estate plan is right for you? To help you decide, check out our article on wills vs. trusts.

2. Make a list of your crypto assets

Having a valid estate plan is an important first step to protecting your crypto assets — but the job doesn’t stop there. Because crypto assets are decentralized, it’s your responsibility to keep track of them.

You can do this by keeping a record of:

• The types of cryptocurrencies you own
• Where each is stored
• The passwords (or keys) needed to access them

This information shouldn’t be included in your will or stored digitally, where it could be hacked or stolen. Instead, consider writing this information on a physical piece of paper and storing it in a safe deposit box, a fireproof safe, or with a trusted family member or attorney. If you don’t entrust the list to a person, you should leave a note (ideally with your estate planning documents) explaining where the list is.

If you want a step-by-step guide, check out our best practices for keeping track of your crypto assets.

Secure your crypto assets with proper planning

An estimated 20% of all Bitcoin has been lost forever, locked in inaccessible wallets or owned by people who passed away without a backup plan. You can prevent this from happening to you by creating an estate plan and keeping an up-to-date list of all your crypto assets. With proper planning, you can safeguard your crypto and make sure it gets passed on to the people or causes you love.

If you don’t have an estate plan, you can take the first step by making your free will with FreeWill. Just fill out the questionnaire, and in as little as 20 minutes, you’ll have a document customized to your wishes and ready to execute.

Don’t want to wait to put your crypto to use for important causes? In a few clicks, you can easily donate your crypto assets to support your favorite charity using Crypto for Charity, our zero-fee crypto donation platform.