A person’s estate plan is an expression of his or her financial legacy and the primary tool for passing assets and property to loved ones according to the person’s wishes. Many people shy away from the topic of estate planning in response to legal complications and the inevitable emotional component. However, having a solid plan in place that reflects a person’s ongoing commitment to provide for his or her family can provide a certain kind of peace of mind that few other things can. An Arizona estate planning attorney can help to weigh options for managing the disposition of any digital assets in a person’s estate. If you have questions regarding cryptocurrency and your estate plan, consider contacting an experienced lawyer from Harrison Law, PLLC, by calling (480) 320-2310 to schedule a confidential consultation.
What Is Cryptocurrency?
According to the Arizona Corporation Commission (ACC), cryptocurrencies are alternative currencies that are not issued or regulated by governmental authority. As a result, cryptocurrencies generally represent riskier financial propositions when compared to traditional currencies, which are backed by tangible assets. Important factors about cryptocurrencies include the following:
- To protect the cryptocurrency in a person’s e-Wallet from theft, that person will need to rely upon personal integrity and that of any third-party computer security systems that are involved
- The Federal Deposit Insurance Corporation (FDIC), which insures deposits of up to $250,000 made in banks, does not address cryptocurrencies
- Cryptocurrency is more vulnerable to cyberattack than traditional currencies and is more susceptible to fraud and theft due to unregulated or underregulated cyber companies that may lack important internal controls
Including Cryptocurrency in an Estate Plan
When it comes to cryptocurrency and estate planning, it is important to be aware of and account for the specific complications that may arise with virtual currencies. Traditional assets, such as stock certificates, bank accounts, jewelry, and valuable collections, can all be addressed by either keeping the asset itself or paperwork that represents the asset in a safe deposit box. Cryptocurrency, although it can be included, requires a different approach.
If you have questions about how to manage cryptocurrency and your estate plan, including how best to prepare your estate for loved ones who may be unfamiliar with cryptocurrencies, a skilled estate planning attorney at Harrison Law, PLLC, may be available to review the options for integrating digital assets from your portfolio into your estate plan.
Addressing Virtual Assets
One of the primary concerns of any estate plan is ensuring that a person’s personal representative has a clear understanding of the assets and how to access them. While this generally is not a problem with traditional assets, the technological requirements can make passing digital assets to heirs far more challenging. Because all online endeavors come with security concerns and because cryptocurrency is not the same as what people have come to expect with traditional banking and investing, it is critical to put serious thought into how to pass the necessary information to a personal representative or heir when the time comes.
Putting Pen to Paper
Because technology changes so quickly, putting relevant information in relation to cryptocurrency and an estate plan on a USB drive, for example, and securing that drive in a safe deposit box may not be a foolproof plan. Instead, a person may want to put the essential information in a written document that will be kept in a safe deposit box. The paper method will be more likely to ensure that, when the time comes, the personal representative will have all the necessary information at his or her fingertips. Some of the most important information to include is:
- The specific cryptocurrency owned
- The access controls used for security, including personal identification numbers (PINs), passphrases, and timelock or multisignature requirements
- The locations of private crypto keys
Holding a virtual asset in cold storage, which generally means keeping it in a hardware wallet—a small, electronic device—that is kept disconnected from the internet significantly reduces the asset’s vulnerability. If this is the method used, a note should be included with information about the location of the device and how to use it.
Protecting the Private Key
One of the primary considerations of cryptocurrency and your estate plan is that virtual assets are controlled by private keys, which are the only mechanism for unlocking them. The key represents a two-pronged challenge that includes keeping the private key secured during a person’s lifetime. That person must also ensure that a personal representative or heir will have the ability to access this critical information after his or her death. Without the private key, the virtual asset will be lost. Unlike other assets, cryptocurrency cannot be revived during the probate process.
Transfer of Cryptocurrency
If a person fails to address cryptocurrency in a Last Will and Testament (will) or other estate planning tool, it will need to be located and accessed before it can go through probate. If a person includes cryptocurrency in his or her will, it will proceed through probate like any other asset does. To secure the transfer of cryptocurrency and other assets, a person may wish to establish a trust, which allows an assigned trustee to hold assets on behalf of the person’s beneficiaries. A trust can be an attractive solution for addressing cryptocurrency in an estate plan for all of the following reasons:
- A trust saves the heirs time and money by keeping the cryptocurrency out of probate
- A trust may help to prevent the loss of the virtual asset
- A trust removes the burden of finding, accessing, and distributing the cryptocurrency
If establishing a trust is the right option for your cryptocurrency estate plan, remember to keep a hard copy of the access information in a safe location that is separate from the trust itself. Be sure that the information is accessible to your personal representative when the time comes to administer the trust.
Contact an Experienced Arizona Estate Planning Attorney Today
If you invest in virtual assets, you may be concerned about cryptocurrency and your estate plan. Develop an estate plan that ensures the secure and efficient disposition of your digital assets to your loved ones. If you are ready to learn more about including cryptocurrency in your estate planning, consider contacting an experienced estate planning attorney at Harrison Law, PLLC, by calling (480) 320-2310 to schedule a consultation today.
© 2022 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
