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Nearly everyone is familiar with bequeathing physical and financial assets, but the process of transferring cryptocurrency after you die might not be as popular.
Typical assets include tangible items such as cash, property, jewelry and art, in addition to stocks and bonds. Recently, more and more people are adding digital assets to their portfolios, usually in the form of cryptocurrency tokens like Ethereum, Bitcoin or Solana.
Some of the leaders in the crypto world have advised investors to ensure that their cryptocurrency fortune remains in the family and doesn’t disappear. They claim that the smartest way to do this is to share your private crypto keys with a trusted family member or friend.
However, results from an Angus Reid study in Canada revealed that only one in four people had shared all of their account and password information with another person. If your account and password details remain a secret, then what happens to your digital assets when you die? Should your will include instructions for Bitcoin inheritance?
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Accessing Cryptocurrency While You’re Alive
Cryptocurrency is open-source, meaning no one person or company owns or controls the currency, and everyone can access it. And because crypto doesn’t operate under a central authority or bank, it instead utilizes peer-to-peer technology ithrough which investors buy and manage digital assets over a secure network.
The crypto wallet app makes it easy for investors to make secure electronic transactions and control their assets, while also providing protection against fraud. The only way to access the virtual currency is with a private key, which is usually a 64-digit passcode.
It’s estimated that tens of billions in unclaimed assets are lost after someone dies, either because no one else is aware of the accounts or because nobody has the credentials to access them. After you die, will your beneficiaries have access to your cryptocurrency private key to inherit your Bitcoin?
Provide Your Loved Ones Access to Your Digital Assets
Since cryptocurrency is decentralized, survivors can’t just call a bank and find out if their deceased relative had a cryptocurrency account.
You can follow these steps to make sure that your digital assets are protected while you’re living and that after you die, your loved ones can access them:
- Use a password manager to store all of your financial accounts’ information, including usernames, passwords and private keys to your digital assets. Share your master password with someone you trust and store it with your will.
- Use a digital wallet (web-based or hardware) or digital exchange to store and manage your Bitcoin and other crypto assets. You can give your family access to your wallet, or the exchange may have a death-management process.
- Create and maintain a list of your financial assets and give access to your executor or a trusted family member or friend. Remember to review and update your list annually or whenever you acquire new digital assets.
- Create a will instructing how you want your crypto assets to be distributed.
- Use a cold storage wallet, such as a digital ledger with private keys. You should charge your battery and leave a key with someone you trust. You can also split the keys into three pieces and leave each with someone you trust.
What Can Surviving Family Members Do?
Coinbase is a secure platform where cryptocurrency investors buy, sell and store digital assets like Bitcoin and Ethereum. When someone with a Coinbase account dies, their family members can follow a process to access the deceased’s account, and ultimately their cryptocurrency holdings.
If you inherit Bitcoin from a deceased person’s Coinbase account, contact Coinbase customer service to notify them of the death and to get help accessing the person’s crypto account. The process is simple.
- Complete the Coinbase customer service form.
- Select the type of Coinbase account — Coinbase or CoinbasePro.
- Under “Let’s get started,” select Other Issues.
- Under “What is your issue about,” select I’m requesting access for a deceased account holder.
- Under “What seems to be the problem,” select General.
- Follow the remaining prompts to reach Coinbase Customer Support.
Be sure to have the following information on hand when contacting Coinbase to access a deceased person’s cryptocurrency account:
- Death certificate
- Will and/or probate documents, which can include a small estate affidavit, collection affidavit, administration letter, testamentary letter, or probate letter
- A current, valid government-issued photo ID
- A signed letter by the named probate official instructing Coinbase on what to do with the balance of the crypto account
Be aware that Coinbase’s death-management process is directed through estate planning attorney services and not through Coinbase itself.
Keep in Mind
Although using a password manager to store all of your financial accounts’ information and sharing the master password with your executor may be wise, it might cause problems after you die.
Password sharing is prohibited on some financial-related apps and websites. Some sites and apps require two-factor authentication, which is often difficult to complete if you are not the primary owner.
Taxes and Cryptocurrency After Death
The Internal Revenue Service is still trying to understand cryptocurrency. Crypto is currently considered capital property and not a monetary asset. So, when you transfer cryptocurrency, you incur capital gains and losses, but you don’t accrue interest.
After a cryptocurrency owner dies, the red tape involved with transferring digital assets is minimal. Beneficiaries need to produce a death certificate, as is required at a bank to retrieve a deceased person’s cash. You also need the owner’s digital wallet passcode to transfer the crypto account into estate administration.
If you don’t leave your Bitcoin or other cryptocurrencies to someone before you die, then the coins will be disposed of at the time of your death. The disposition of your digital assets will be a taxable event for your estate and could result in a hefty capital gain.
You can avoid this unfortunate event by assigning your loved ones as cryptocurrency beneficiaries. Some digital asset succession management solutions work with estates and content providers to help manage the transfer of digital assets after death.
Crypto exchanges are improving their death-management processes to include notification of digital assets before death, instructions on how to access cryptocurrency after someone dies and valuable information about cryptocurrency inheritance. However, it’s critical that you address what will happen with your crypto assets if you were to pass away to avoid complications.
You don’t want your assets to be lost because you never got around to making a will.