Cryptocurrency and Estate Planning: Addressing the Challenges of Passing Down Digital Wealth
Technology has changed the way we communicate, work, and invest. Approximately 27% of Californian adults own cryptocurrency, which provides both unique opportunities and challenges.
If you’re considering adding digital wealth to your portfolio, it’s crucial to understand how cryptocurrency will affect your estate plan.
Cryptocurrency Simplified
Cryptocurrency, such as Bitcoin, is a form of digital money that exists only online and uses secure technology called blockchain to record transactions. It is decentralized, meaning it isn’t controlled by any institution. People use cryptocurrency to invest, make payments, or store value.
The Complexities of Cryptocurrency in Estate Planning
Since cryptocurrency is intangible, you need to prove ownership through private digital keys rather than bank records or paper statements. Access depends entirely on these digital keys and requires careful planning to ensure it can be accessed and transferred when needed. If these digital keys are lost, there is no authority you can call to gain access.
Additionally, if your heirs don’t have access to your private keys or recovery phrases after you pass away, your digital wealth, which could be substantial, can be lost forever.
California Recognizes Cryptocurrency in Estate Planning
California’s Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) provides fiduciaries, such as executors, trustees, and POAs, with a legal framework for accessing and managing a person’s cryptocurrency upon death or incapacity.
However, your estate planning documents must explicitly authorize access under RUFADAA. Without that authority, the cryptocurrency exchange or wallet provider may deny your appointed fiduciary access.
Your Digital Estate Plan
You can help ensure your digital wealth is passed on to your heirs by taking the following steps:
1. Inventory Your Digital Assets
Document all of your digital holdings, including cryptocurrency wallets, NFTs, and DeFi investments. Include where they are stored and any technical details you believe your fiduciary will need.
2. Document access instructions
Use a secure, offline method for storing your private keys or seed phrases. Never write them directly into your will, as it will become public record during the probate process. Make sure your fiduciary knows how to retrieve them.
3. Use Specific Digital Asset Language
Using generic terms, such as “my digital assets,” is insufficient. Your estate plan should distinctly identify cryptocurrency, NFTs, and other digital assets by name. Explain how you want them distributed and ensure your executor has the explicit authority to access them.
4. Name a Digital Executor
Managing digital wealth requires technical skills that your estate’s executor may lack. Consider appointing a separate executor who’s solely responsible for accessing, managing, and distributing your digital estate.
LPEP Law Can Help with Your Digital Estate Planning
If cryptocurrency and other digital assets are an integral part of your investment portfolio, it’s essential to plan ahead. Failing to do so could result in:
- The loss of significant assets
- Legal challenges for fiduciaries
- Delayed transfer of wealth
Our attorneys at Lonich Patton Ehrlich Policastri can help you craft an estate plan that includes your digital assets. We understand the challenges of passing down digital wealth and will work with you to protect, organize, and legally transfer it so your loved ones aren’t locked out when it matters most.
Contact us at (408) 553-0801 for a free consultation on safeguarding your digital assets and preserving your legacy.
Disclaimer: This article does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter.
Michael Lonich
Specializing in Divorce and Estate Planning, I am San Jose Attorney, Michael E. Lonich; and I have been battling for client’s rights for nearly 40 years. When focusing on divorce, child custody, and related matters, I know all too well the emotional and financial toll divorce has on clients. Integrity, common sense, and a passion for what I do which guarantee the best possible results for my clients. Resolution of family law issues requires an attorney able to navigate the myriad legal and emotional issues presented in cases. Financial issues, child custody, domestic violence, valuation of property, analysis of RSUs, hidden assets, spousal and child support, all may require trial, mediation, or a collaborative effort with the parties. Regardless, each client gets the individualized attention they require. Every family law case is unique, we partner with you to develop a comprehensive approach to get the best results.
