Until Death Do Us Part? Crypto When We Die

Some Tips & Considerations Concerning Digital Assets

Cryptocurrencies remain an exciting and emerging asset class. Given their high volatility and inability to generate an expected return at present, Balentine does not recommend cryptocurrencies as part of an asset allocation.¹ However, increasing numbers of clients hold such assets on a speculative basis—certainly more exciting than the traditional lottery ticket. Even though few, if any, hold more than 5% of their wealth in cryptocurrency, the rise of how and where such assets are held has prompted the question: what happens to my crypto when I die?

The Issue at Hand

While physical assets can be passed on through a will, the decentralization of digital assets makes this task much more difficult. Typically, digital assets, like cryptocurrencies or NFTs (non-fungible tokens, such as digital art), are accessed via a private key (64-digit code) known only by the owner of the crypto account. If that knowledge dies with the owner of the account or falls into the wrong hands, it may be lost forever. To prevent either of these issues from materializing and disrupting your inheritance planning, it’s important to consider how to properly store digital assets and prepare cryptocurrencies for transfer in the event that you pass away unexpectedly.

Storing Cryptocurrencies

Cryptocurrencies are traded and stored in one of two ways. Hot wallets are platforms used to trade cryptocurrencies, acting as free and convenient vehicles for holding these digital assets. However, to access your tokens, an Internet connection is required meaning you are dependent on the platform’s functionality. Should that platform be the victim of a cybersecurity attack, or cease to exist, your funds are out of your control. This potential problem lends itself to the second most common form of digital asset storage – cold wallets. Cold wallets exist offline, usually in the form of a USB drive, and can be kept in home safes, deposit boxes, or stored in other secure locations. Regardless, you must know your private key to access funds and, in the case of cold storage, a PIN code and recovery phrase are also required. As such, cold backup of your hot wallet and specific instructions for any heirs are vital. Additional tips and best practices include:

• Most hot wallet companies are new; spread your bets, PayPal is a well-known and common wallet and Coinbase is very large in size.
• Set a recovery phrase for your cold wallet.
• Don't overcomplicate the system (i.e. storing key the PIN, and the recovery phrase in different places).

When someone dies, they either have a will that dictates how their assets will be distributed, or, if they die without a will, a government formula outlines how their assets will be divided. While a will outlines who should receive what, it typically doesn’t have an up-to-date asset list, nor does it contain passwords or access keys.

How to pass on cryptocurrency to loved ones:

• Name a beneficiary in your will if appropriate.
• Add a document to your estate plan that lists your crypto assets and any passwords, PINs, keys, and instructions to find your cold wallet.
• Naming a beneficiary to your "hot" wallet is important because a named beneficiary can access your account information after you are deceased.

Updating your plan and wallet:

• Keep your plan updated after life changes like marriage or divorce.
• Check with your wallet provider to make sure your information is up-to-date and that beneficiaries are properly noted.
• Make sure to install all updates for hot wallets and log in at least four times a year to see if you need updates.

The large growth in value of cryptocurrencies has made them a more commonplace aspect of people’s net worth and something that they should be thoughtful about protecting and potentially passing on in the event of their untimely demise.

¹You can read more about Balentine’s recommendations surrounding cryptocurrency in these blog posts: Making Sense of the Bitcoin Buzz & Beyond Abstraction: Bitcoin Practicalities.