What Happens to your Crypto when you Die? | Learn

Cryptocurrency has made a notable impact in the financial world, with many individuals now owning these digital assets. Yet, planning how to handle these assets after the owner's passing is a crucial but often overlooked issue.

This raises the question: What happens to your crypto when you die?

The quick answer is if you don’t plan properly in advance, the chances are that your crypto will either be lost forever or get entangled in complicated legal probate proceedings.

With proper planning, individuals can prevent potential legal disputes and ensure that their loved ones receive the intended share of crypto, alleviating much stress and uncertainty during a challenging time.

In this article, we will explore the challenges of managing cryptocurrencies after death, and present a solution to ensure your digital crypto assets are passed on according to your wishes.

Cryptocurrency Storage Overview

Understanding how to store and access cryptocurrency is one of the most important aspects of owning it. Unlike traditional money stored in bank accounts, cryptocurrencies need a more technical setup. You can store them in self-custody wallets, cryptocurrency exchanges, and a software platform using a secured third-party regulated chartered trust.

Self-Custody Wallets

Self-custody wallets are digital wallets that allow you to store, send, and receive cryptocurrencies. These are set up by individuals who prefer to manage their crypto assets, providing them with full control and responsibility over their digital finances. This method involves securely setting up and maintaining one's wallet, ensuring the safekeeping of crucial access information like passwords and seed phrases. These wallets come in two major types, hot wallets and cold wallets.

Hot wallets connect to the internet, which makes them easy to access but susceptible to cyber-attacks.

Cold wallets are like safe boxes kept offline, so your assets are safe from online threats. But they could be more challenging to access and set up, especially for individuals not well-versed in cryptocurrency technologies.

When managing your cryptocurrency without a third party platform, there is no option to designate a beneficiary. Proper estate planning will be your only option to ensure your crypto is handled correctly.

Crypto Exchange

Some investors choose to keep their cryptocurrencies on an exchange, which is a type of platform where users can buy, sell, and trade cryptocurrencies. While exchanges offer ease of access and simplicity, they operate “On Balance Sheet” where client assets may be commingled with a company's business operations putting client funds at risk.

When it comes to exchanges like Coinbase, people don’t realize that you cannot name a designated beneficiary in your account. As stated by Coinbase, you would only be able to name a beneficiary through an estate planning attorney.

“Typically, naming a beneficiary on your Coinbase account would be done with your estate planning attorney. Like most other assets, the ownership of your Coinbase account would be transferred according to your will or other arrangements made with your legal counsel. It's not currently possible to name a beneficiary directly within your Coinbase account, rather, in the event of your death, we would follow our standard ownership transfer procedures described above”. - Coinbase

Platform Using a Third-Party Chartered Trust

Another option to store your cryptocurrency is on a platform that uses a third-party regulated chartered trust. This option operates similarly to an exchange where you can buy and sell cryptocurrency, but with a twist. Unlike an exchange that operates with an “On Balance Sheet” model, a third-party regulated chartered trust operates “Off Balance Sheet” where assets here are held on a 1:1 basis and clients assets are never commingled with the company's business operations.

This approach allows beneficiaries to be designated for the account holder.

Awareness and Misconceptions

Many people in the cryptocurrency community don't know what happens to their digital assets after they die. A common misunderstanding is that passing down cryptocurrencies to heirs is easy, like with regular assets. But, the reality is to access those cryptocurrencies, you will need specific access information based on the storage method.

Here are some examples:

Crypto in an Exchange:

Login details like your associated email and password are required.
A two-factor authenticator may be required, which might be a separate device, like an associated cellphone or yubikey, or an authenticator app.
Beneficiaries are not an option.

Crypto in Self-Custody (Hot & Cold Wallets):

Great, your crypto is in a self-custody wallet, but whoever needs to access it will need to know where to look.

For a hot wallet, you need a password. A written seed phrase may be required in case you don’t have the password.
For a cold wallet, you need the physical device and the pass pin. A written seed phrase may be required in case the device is broken and/or you don’t have the pass pin.
Beneficiaries are not an option.

If you do not have any of these components, there is no way someone can access your crypto.

Platform Using a Third-Party Chartered Trust:

Login details like your email and password are required.
A two-factor authenticator may be required, which might be a separate device, like an associated cellphone or yubikey, or an authenticator app.
Beneficiaries can be assigned to your account, so if a passing occurs, it will be transferred over to the designated individuals.

Legal and Estate Planning Implications

Ensuring comprehensive estate planning with specific details like planning documents, logins, passwords, authentication tools, and seed phrases offers the greatest legal precision upon one's passing. Without these preparations, there's a potential risk of cryptocurrency inaccessibility. Traditional estate planning methods frequently don't measure up to cryptocurrencies, given their distinct characteristics and technical challenges. If clear instructions are absent, the likelihood of access issues significantly increases.

Having a frank discussion about your crypto and your wishes with those you intend on passing it down to could be helpful. Unlike traditional assets, cryptocurrencies need more meticulous planning to ensure a smooth transition.

Selecting a beneficiary and informing them about your assets, along with the necessary access credentials, ensures your digital assets find the right hands.

Planning Ahead

Like many aspects of life, foresight and preparation are essential to reduce uncertainties and pave the way for a secure future. Without adequate planning for your crypto assets, you open the door to legal complications and potential family disputes. Assessing how your assets are handled and formulating a strategy is crucial to ensure the fruits of your labor are directed to the intended recipients.

iTrustCapital offers crypto custody held in a third-party charted trust with the option to add beneficiaries.

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DISCLAIMER

This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.

iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.

Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.

Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.

iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and shall not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.