Nobody wants to accumulate digital assets that will one day disappear, often upon death. This is why it’s important to have an estate plan – a probate court won’t review your assets, so your loved ones can avoid unnecessary stress. A valid estate plan ensures your deepest wishes will be fulfilled. Contrary to popular opinion, estate planning isn’t just for the ultra-wealthy. Suppose you’ve dipped your toes into the investing waters or are about to buy Bitcoin. In that case, it’s crucial to understand that cryptocurrency is different from other investment assets, so prioritize the future. One of the simplest ways to leave Bitcoin as an inheritance is to name a beneficiary (or two).
Without Careful Planning, Your Bitcoin Could Be Lost Forever
Bitcoin is essentially a digital asset that deploys a public ledger that exists thanks to the Internet, which provides proof of ownership; it relies on cryptography and peer-to-peer computing. Because Bitcoin is decentralized, you must include it in your estate plan. Why is this important to understand? Well, let’s take an example. Imagine that you had to include a bank account in your will, but it totally slipped your mind. A central authority manages the account, so a court of law can verify its authority and enable access to the account after your death. With cryptocurrency, it’s an entirely different story, meaning that it functions without a custodian. It’s your responsibility to create a plan for your Bitcoin and explain how your heirs can access the tokens.
There’s no better time than now to start thinking about estate planning. Whether you’re the breadwinner in the family or a recent college graduate, think about what will happen to your loved one’s financial health if you pass away. If something were to happen to you, who would your next of kin be able to access the funds? Would they know what to do with the seed phrase you’ve hidden in a safe location? Even if Bitcoin is a digital currency, you should treat it like a physical asset with value, so make an estate plan and leave explicit instructions for the people you want to inherit the tokens.
Let Your Executor Know How Many Bitcoins You Hold and How They Can Be Accessed
In crypto estate planning, the executor undertakes the final responsibilities of the estate, including the distribution of assets to beneficiaries. The events following your death are heart-wrenching, but you can ease some of the despair by planning ahead and letting your executor know how much you own in Bitcoin and provide the exact location of the funds (either your wallet or exchange). The latter is the most difficult part of the process. Bitcoin is controlled via a set of digital keys and addresses, meaning the recipient must have a unique private key to access the funds. Having your information well-organized can save your family headaches and prevent financial strain, so make your will precise. The most important points that must be presented are:
- The types of property and assets
- Key locations
- Access controls for security
Prepare a set of documents for your executor that includes original copies of your birth certificate, marriage certificate, certificate of divorce (if applicable), and so on. Equally, make sure to include a copy of your social insurance card. According to the experts, it’s a good idea to have at least two copies of records of assets and store them separately, as they’re very useful when sent or shown to someone who doesn’t have access to your computer.
Will Vs Trust: Which Is Better for You?
A will doesn’t come into force until you die, while a trust is effective immediately upon signing. A trust is a legal entity set up to ensure your Bitcoin goes to the right beneficiaries the way you want, so you have more control over the distribution of your estate and can even reduce your taxes. If you create trust, you can transfer your digital assets right away. Write an assignment document stating that you want the tokens to be transferred to your trustee to settle a possible dispute; although notarization isn’t required, it’s recommended to have someone witness the signing and dating of the agreement.
For a smaller estate with easily transferable assets, a will is the least expensive and most efficient choice. If you’re thinking about naming co-executors in your will, select people who have a harmonious and friendly relationship and outline their responsibilities so there’s no room for confusion. As mentioned earlier, you can include Bitcoin in your will, but ensure your beneficiaries can find it when you pass away– in other words, you must have a plan for what happens to your tokens when you’re gone. It requires some paperwork and making sure the beneficiaries receive a copy of the key. More exactly, include a provision in your will, specifying that you hold Bitcoin and the number of coins you own.
Not Planning for A Succession Is Planning to Fail
Setting up a will or a trust enables you to maintain the privacy of your holdings, something that your heirs will be able to appreciate. When planning your exit, it’s paramount to work with a professional to ensure a successful outcome, so have a one-on-one conversation and find out if your assumptions are correct. If you have a substantial amount of Bitcoin that you’d like to share with your beneficiaries, don’t worry because your loved ones don’t owe taxes unless they sell or give the tokens away, in which case they must pay capital gains tax. So, it’s really a win-win.
Final Thoughts
If you’ve invested in Bitcoin, you can legally bequeath it to your loved ones through your estate plan by writing your last will and testament. As opposed to property, it’s not possible to access the coins without holding the private key, which is typically 64 characters in length. If you have the time, create an access guide for your family, so they know exactly how to get their hands on the gifts they’ve received.
