How Does One Plan for Cryptocurrency? - Harvest Law KC

How Does One Plan for Cryptocurrency?

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KS and MO Attorney Kyle E Krull

Written by Kyle Krull

Attorney & Counsellor at Law Kyle Krull is founder of Harvest Law KC, an Estate Planning Law firm located in Overland Park, KS. Estate Planning Attorney Kyle Krull has provided continuing education instruction to attorneys, accountants, and financial professionals at local, state, and national programs.

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POSTED ON: March 15, 2022

Cryptocurrency can be easily misplaced after the owner has died. Non-digital and traditional assets are less likely to be lost or misplaced. Your children can see your home. They have probably admired your jewelry, art, and collectibles over the years. Bank and investment statements allow them to see how much money you in them. According […]

Cryptocurrency can be easily misplaced after the owner has died.

Non-digital and traditional assets are less likely to be lost or misplaced.

Your children can see your home.

They have probably admired your jewelry, art, and collectibles over the years.

Bank and investment statements allow them to see how much money you in them.

According to a recent Next Advisor article titled “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever,” cryptocurrency is fairly easy to overlook.

Cryptocurrency is becoming a more popular medium.

Too many people have literally lost their cryptocurrency wealth.

Why?

The is a relatively new form of currency and can be stored in a variety of places like in a cryptocurrency wallet or in an offline hard drive.

Because it is unfamiliar for many, millions and potentially billions in crypto have been lost by early buyers because of they failed to ensure access to these assets upon incapacity and at death.

Yikes!

To preserve these assets, you will need to be incorporate them into your estate planning.

What can you do?

Because there is no centralized banking system for these cryptocurrency, you are responsible for ensuring security and access.

Although these goals are not the same, it is not impossible to accommodate both.

You will need to decide how you would like to store your cryptocurrency as well as other digital assets like non-fungible tokens (NFTs).

It is wise to set up tiered back-up accounts with varied security measures.

Do you sell and purchase your cryptocurrency on an exchange?

If yes, you likely utilize a portal.

By leaving your username and password with your loved ones, you can help them gain access to your portal after you have died.

In some instances, this information is insufficient.

You will also need to provide access to your email and cell phone to receive a two-step verification code.

Large sums of cryptocurrency should be handled with additional security and backup.

Because this will make it more challenging for your executor to access, you should educate your executor on everything he or she will need to know about your crypto.

Your executor should know about crypto exchanges like Coinbase.

It is likely your executor will not know the differences between hot wallets and cold storage.

The hot wallets are not centralized but require a 12 or 24 word secret seed phrase to access them.

With cold storage, you can utilized a USB drive to work as a digital safe.

The executor will need to know your 12 or 24 word secret seed phrase to backup or recover your account information.

If you have kept the cold storage device in a waterproof or fireproof safe, you will need to provide the executor with a key or combination as well as the location.

As part of your digital estate plan, you should securely store physical documents with descriptions of each digital wallet.

What can be included in these digital wallet instructions?

You should include information on whether the wallet is a mobile wallet, a cold storage wallet, or in an exchange.

It is also important to provide provide passwords, usernames, seed phrases, and security keys.

Your executor will also benefit from instructions on how to access your phone if you hold mobile wallets or have two-factor authentication on your phone.

It is best to avoid storing this information on the internet to provide additional protection from hackers.

Is it likely your loved ones understand the concepts of cryptocurrency and digital assets?

If they are not comfortable utilizing this medium, you could liquidate the asset through a centralized exchange and have it sold in U.S. dollars.

If your loved ones choose to do so, they should understand the IRS will tax this sale.

Working with an experienced estate planning attorney can help you incorporate your cryptocurrency in your comprehensive estate plan.

Reference: Next Advisor (Feb. 17, 2022) “What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investments Forever”

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