Estate Planning for Digital Assets (Not Just Your Crypto!) | Keating Muething & Klekamp PLL

When we sit down to discuss an estate plan, we always think of “traditional” assets first – your home, your retirement accounts, your investments, your business interests. But for a growing number of people, digital assets are becoming just as important. This article explores good planning for cryptocurrency and other non-traditional digital assets, including cell phone and online accounts.


There are currently over 4,000 different types of cryptocurrency. Bitcoin, Ethereum and even Dogecoin are among the best known. As cryptocurrency continues to go mainstream, its value as part of your portfolio will only increase, and unlike traditional assets, there is no physical manifestation of cryptocurrency, so don’t including in your estate plan could be far more detrimental than failing to plan traditional assets.

Cryptocurrency is a digital currency that uses encryption and links a network of computers to perform transactions. There are two main ways to own a cryptocurrency account: through a cryptocurrency exchange or in your own “wallet” with an encrypted private key.

Crypto exchanges are similar to traditional brokers in that a custodian owns the account. Unfortunately, to date, most exchanges do not allow beneficiary designation or ownership by a trust or business entity, making traditional estate planning difficult. Another disadvantage is that, if an account “rips” or explodes in value, only a sufficient amount can be withdrawn from the exchange on a daily basis, limiting immediate access to assets and increasing the importance of long-term planning. A probate administration, although generally undesirable, will generally ensure that the account is not lost on the death of the owner. As cryptocurrency and exchanges continue to grow and evolve, they will likely become more “estate planning friendly,” so better planning options are sure to come in the near future.

For crypto accounts not held on an exchange, each account is accessed by an encrypted private key – sometimes as long as 64 digits – which is unique to the owner. When you sign up for a wallet, you receive a key unique to you that must be entered in a specific order to access the wallet. If the key is lost, there is no password reset or court order in the world that will recover the key – the account and all of its value is lost forever. News reports are full of stories of inadvertent crypto incidents; just take Mathew Mellon, heir to the Mellon fortune who died without passing on any information about his billion dollar crypto account, or James Howells, the guy who searched UK dumps for years to find his USB drive with $280 million worth of Bitcoin.

For owner-only crypto, relatives need to know that the account exists, where to find it, and how to access it via a private key. As such, there are a few recommended estate planning techniques to minimize the risk of a valuable crypto account being lost due to theft or death.

First, consider sharing account information, including the private key, with your spouse or a trusted family member or friend. Remember, however, that when selecting appropriate holders of this information, treat it like cash – access to the key itself is all the person needs to gain access to the account, move it and claim it as his own. For some, it may be best to include the relevant information, including the private key, in a memo locked away in a safe or other secure location where a trusted family member will know where to find it when the time comes. If your family members or intended beneficiaries are unfamiliar with how crypto accounts work, a step-by-step guide to accessing and administering cryptocurrency may be advisable.

Second, consider dividing the private key among a few trusted people. Maybe your lawyer holds half the key and your financial advisor holds the other half. But an arrangement must be made both as to when and how the information is shared upon your death, and as to what storage mechanism each may offer.

Another solution is to spread the key among the intended beneficiaries, but keep in mind that when the time comes, they must understand how to decrypt it appropriately. Giving your spouse the numbers 123, your son 456 and your daughter 789 may seem logical, but what if one of them loses their key? A better solution might be to give your spouse 123(A) and 456(B), your son 456(B) and 789(C), and your daughter 789(C) and 123(A). This way, two people are still needed, but the loss of one will not be fatal.

Other options, although not discussed in detail here, include creating a “dead man’s switch” where ownership will automatically transfer to an intended beneficiary if you do not log in and authenticate the account ( after multiple attempts to reach you) for a period of 18 months, or opting into ownership via software applications or hardware wallets.

Ultimately, as part of proper estate planning, you should discuss with your attorney the ownership of the account by your trust upon your death. Within the trust, the instrument must specify the disposition of the cryptocurrency – should the account be transferred in kind to the beneficiaries or liquidated? Can the fiduciary hold a concentrated position in the cryptocurrency, or will the account default to the diversification rules? Careful consideration should also be given to who will serve as the trustee. Currently, many institutional trustees have policies against administering trusts with cryptocurrency or require immediate liquidation of crypto accounts, so an experienced individual trustee, whether only for crypto accounts or all assets of the trust, may be required.

Cryptocurrency accounts and estate planning techniques are sure to adapt and change rapidly in the years to come, so a good first step is to discuss your options with your estate planning attorney. At KMK, we constantly evaluate the latest and greatest strategies and modify our estate planning documents to appropriately address the transfer and administration of these important assets.

Sentimental digital assets

While not planning for cryptocurrency properly can be financially detrimental, the loss of certain digital assets could have a more emotional impact.

If you die today, will anyone be able to access your cell phone or iCloud photos? Luckily, these types of assets aren’t at risk of theft or loss in the same way as crypto accounts, so planning can be a little easier.

Some institutions provide “legacy” settings that allow you to control the disposition of the account upon your death, but for most digital assets of this type, proper estate planning can be handled by transferring your login information. Your estate plan must first give your spouse or a trustee the power to access and manage these assets upon your death, and then the proper documents must be in place to assign or transfer accounts and other digital assets to your trust or your loved ones at your home. who passed. With estate planning in place, all you have to do is make sure your loved ones know how to access digital accounts or records. Since these assets do not pose the same risk of theft as cryptocurrency, write up a list of passwords and store it in a safe place within your home or provide it to your lawyer for safekeeping in your physical folder may be sufficient. It is not recommended to share passwords widely during your lifetime, but your spouse or children should know where to find the list if you die to allow easy access to assets.

Estate planning for digital assets is a fluid process that requires regular maintenance, and this asset class is sure to grow rapidly in the years to come. The most important first step is to start considering digital assets as an important part of your portfolio and to start considering the transfer of these assets in the event of incapacity or death.

Sylvia B. Polson