When I started my practice in 2002, we didn’t even have a way for someone to pay with a credit card – which was fine since most of my clients preferred to use checks. Twenty years later, not only are checks increasingly uncommon, but a whole new type of currency has been invented. I’m speaking, of course, about cryptocurrency. Cryptocurrency has rapidly become a popular investment option, with millions of people holding digital assets like Bitcoin, Ethereum, and other tokens. While cryptocurrency offers a modern, decentralized approach to financial management, its unique characteristics make it especially critical to consider in estate planning. Failing to consider your cryptocurrency as a part of your estate plan could lead to lost assets and additional stress for your loved ones. And while we don’t yet accept crypto as payment, here’s why addressing your crypto holdings in estate planning is essential:
1. Cryptocurrency Is a Unique Asset Class
Unlike traditional financial assets, cryptocurrency is decentralized and stored in digital wallets that are protected by private keys. Without these private keys, access to the funds is impossible. Unlike a bank account or stock portfolio, there’s no central institution to turn to for help if access is lost. This means that if you don’t properly document and plan for the transfer of your crypto assets, they could be irretrievably lost after your death.
2. Lack of Awareness Among Heirs
Many people do not openly discuss their cryptocurrency holdings with family members or even their financial advisors. This secrecy can be problematic when preparing your estate plan. Without proper documentation or instructions, your heirs may not even know that you own cryptocurrency, let alone how to access it. Including instructions regarding cryptocurrency in your estate plan ensures your digital wealth is accounted for and distributed according to your wishes.
3. Legal and Tax Implications
Cryptocurrency is treated as property for tax purposes in many countries, including the United States. This means that upon your death, your digital assets may be subject to estate taxes, capital gains taxes, or other levies. A well-structured estate plan can help minimize the tax burden on your heirs and ensure compliance with applicable laws. Consulting with a financial advisor or estate planning attorney familiar with cryptocurrency is crucial for navigating these complexities.
4. The Importance of Access and Security
The very security features that make cryptocurrency appealing—anonymity and self-custody—also make it difficult to pass on to heirs. To ensure your loved ones can access your crypto assets, you need a plan that balances security with accessibility. This might involve:
- Creating a list of your cryptocurrency holdings.
- Documenting wallet addresses, private keys, and seed phrases.
- Storing this information securely, such as in a password-protected digital vault or with a trusted third party.
Without these steps, your heirs may face significant challenges in accessing your digital assets.
5. Take Inventory
List all your cryptocurrency holdings, including wallet addresses, private keys, and seed phrases.
6. Consult Professionals
Work with an estate planning attorney and a financial advisor who are familiar with digital assets.
7. Secure Your Documentation
Store critical information in a safe but accessible location, such as a secure digital vault or a trusted estate planning tool.
8. Designate Beneficiaries
Clearly state who should inherit your cryptocurrency and provide instructions on accessing and managing the assets.
9. Update Regularly
Revisit your estate plan regularly to account for changes in your portfolio, technology, or laws.
Cryptocurrency represents a significant and growing portion of wealth for many individuals. However, its unique nature demands special attention during estate planning. By proactively including cryptocurrency in your estate plan, you can ensure your digital assets are not lost or overlooked, provide for your loved ones, and minimize potential legal and tax complications. Taking these steps today will give you peace of mind and protect your legacy in the digital age.
For more info on how Legacy Estate & Elder Law can support your Estate Planning needs, contact us today.
The information provided is not intended to be legal or tax advice and does not constitute any attorney/client relationship. You should consult with an attorney for individual advice regarding your own situation.
Ms. Melancon is an attorney with Legacy Estate & Elder Law of Louisiana, LLC with offices in Baton Rouge, New Orleans and Lake Charles, LA. The primary focus of her practice is estate planning, probate, special needs planning, and elder law. For more information or to attend an upcoming estate planning seminar, call her office at (225) 744-0027.
