What happens to your bitcoins when you die? For digital currency investors, digital nomads, and others who rely on digital currency in their daily lives, this is an important question. We’re all familiar with the benefits of bitcoin – privacy, security, and the potential for significant appreciation among them – but few people know how to make sure their digital currency assets will end up in the right hands after their death.
To set the stage, let’s start with this fundamental concept: You can provide for the transfer of your bitcoins (or any other forms of digital currency) in your estate plan. As a result, the key questions are:
- How do you address bitcoin in your estate plan?
- How do you make sure your beneficiaries will have access to your bitcoin wallet?
- What steps should you be taking now to make sure your bitcoins are inheritable in the future?
How Do You Address Bitcoin in Your Estate Plan?
Despite their novelty, when it comes to estate planning, bitcoins are just another type of asset that you need to make sure you cover in your plan. This means a few different things:
1. Yes, You Need an Estate Plan.
First of all, you need an estate plan, and you need to make sure that it clearly addresses your bitcoin just like it addresses all of the other assets that make up your estate (read this post to find out why even single people need an estate plan). If you leave any assets out of your estate plan, they will be subject to the laws of intestate succession, which is the legal way of saying that an archaic statute will determine who gets what in a way that almost certainly deviates from your final wishes. This makes things complicated (and expensive) for your loved ones, and it also leaves your estate exposed to potentially significant tax liabilities that can typically be avoided, even with fairly basic planning.
2. Plan for Your Loved Ones to Avoid the Probate Process.
Second, especially with a novel asset like a bitcoin wallet, you will almost certainly want to plan your estate so that it avoids the probate process. Probate, again, is expensive, and it is also time-consuming and entirely unnecessary. By using estate planning tools like the revocable living trust, you can keep your estate out of probate court, saving your loved ones time and money in the process.
3. Consider All of the Options You Have Available.
While the revocable living trust is quickly becoming the go-to tool for many estate planners, it is by no means the only option available. There are various other forms of trusts as well; and, depending on where you, your loved ones, and your bitcoin wallet are located, you may want to consider various international estate planning options as well. Again, this does not necessarily relate specifically to your holdings in bitcoin, but rather is a general tenet of building a personalized and comprehensive estate plan.
How Do You Make Sure Your Beneficiaries Will Have Access to Your Bitcoin Wallet?
All of that said, there are some unique considerations when estate planning with bitcoin. These arise primarily out of the unique characteristics of digital currency.
Unlike government-issued currency and precious metals that you can hold in your hand or store in a bank, bitcoin truly only exists in the digital realm. You can’t hold it, you can’t technically “withdraw” it, and it is in many ways much more akin to a stock or other security than the good old-fashioned dollar.
The only way to access your bitcoin wealth is through your digital wallet, and the only way to transition this wealth into the physical world is to sell your bitcoin on an exchange for US dollars or foreign currency. As a result, if you die and no one else has the credentials to access your wallet (or even knows that your bitcoin wallet exists), your bitcoin will effectively die with you. It is similar to dying without giving anyone the combination to your safe – except that with bitcoin’s cryptographic privacy and security features, there is virtually no hope of anyone ever breaking in.
Perhaps you can see where we are going with this: In order to plan an estate with bitcoin, you need to plan for someone else to have access to your wallet. Whether you trust someone enough to give them your access credentials or a copy of your wallet now, you place a copy of your credentials into a trust or escrow, or you use a technological solution to grant your trustee or chosen beneficiary(ies) access to your private information after you die, the key is to make sure that the right individual(s) will have access when the time inevitably comes to transfer your bitcoin wealth.
What Steps Should You Be Taking Now to Make Sure Your Bitcoins Are Inheritable in the Future?
With all of this in mind, if you haven’t yet specifically addressed bitcoin in your estate plan, here are some of the key steps you will need to take in order to get started:
- Think about who you want to inherit your bitcoin wallet. Who do you want to inherit your bitcoin wallet? Will you need to divide your bitcoin wealth; and, if so, what method of doing so makes the most sense given your personal and family circumstances?
- Make sure the right people know about your bitcoin wealth. To most people, the world of digital currency is still a mystery. If you leave your bitcoins to your spouse, children, or anyone else, will they know how to access and benefit from it? Or, would it be better to appoint a trustee who can administer your bitcoin wallet in your absence?
- Consider the tax implications of different estate planning tools and gift timing. Bitcoin transfers implicate certain tax issues not involved in passing on traditional forms of currency. For example, if you do not plan carefully, your beneficiary(ies) could end up owing tax on your bitcoin estate even if your wallet has lost value over time.
- Consider whether it makes sense to continue to hold your bitcoins until you die. Should you hold onto your bitcoins until the end; or, does it make sense to sell them now (or at some point in the future)? Answering this question requires consideration of a number of different factors.
- Address bitcoin in your power of attorney. Finally, it is important to remember that estate planning is about more than just distributing your assets after death. Among the other issues to address is the risk that you will become mentally incapacitated at some point during your lifetime. Whether due to an accident or illness, if you need help managing your financial affairs, who will be able to step in and manage your bitcoin wallet on your behalf?
Contact Jiah Kim & Associates for a Bitcoin Estate Planning Consultation
If you would like more information about bitcoin estate planning, contact Jiah Kim & Associates today for an initial consultation. We provide comprehensive estate planning services to US residents, digital nomads, and expatriates worldwide. To get started, please schedule an appointment online or call (646) 389-5065 now.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.