Is Crypto the Kryptonite of Estate Planning?

Is Crypto the Kryptonite of Estate Planning?

July 21, 2022

Cryptocurrencies and digital assets, such as non-fungible tokens (NFTs), are increasingly popular investments, particularly among younger generations. Bitcoin, the first ever cryptocurrency, alone has more than 19 million “coins” in circulation. Part of the attraction is their anonymity, unique security, and lack of central control. These very characteristics, however, present singular challenges when it comes to proper estate planning.

Traditional investments include savings accounts, IRA’s, 401K’s, whole life insurance, stock accounts, and the like. Each are linked to the individual owner through identifying information such as name, date of birth and social security number. If you pass away, your estate representative can access your bank statements, transfer stock, and view the worth of your online stock portfolio with relative ease.

Other types of non-crypto digital assets, such as emails and social media accounts, are centrally housed with custodians such as Google, Facebook, Instagram, or Twitter. Without passwords, your family will not be able to simply login to your accounts to access photographs or your social media after you pass away. Historically, these companies have at times denied a family’s access to digital accounts due to privacy considerations. New York’s EPTL Article 13-A was enacted to remedy this issue. Subject to a user’s direction, these companies are now required to give an estate representative access to digital assets and potentially electronic communications. The user can authorize or limit disclosure through online tools, wills, powers of attorney, or trusts.

The same cannot be said for cryptocurrency. By its very nature, cryptocurrencies are designed to be anonymous and are only accessible by virtue of a private digital “key.” This private key is essentially a complex password created by the user consisting of a string of letters and numbers. The private key enables the user to make transactions and prove ownership of digital holdings. It can be stored in stored in a user’s digital wallet, or in some cases, in cold storage (i.e., a USB drive). Importantly, only the cryptocurrency user holds the private key unless shared with others. Unlike a Facebook or Instagram account, an estate representative cannot go to a custodian to request the private key or the cryptocurrency asset. If the private key is lost, the cryptocurrency assets are lost forever. Such fact makes it all the more critical to have a plan for passing on your cryptocurrency assets to your loved ones.  

The planning may be as simple as preparing a letter of instruction for your intended estate representative identifying your cryptocurrencies, passwords, and the private key. For security purposes, this letter of instruction can be placed in a safety deposit box, or confidentially retained with your estate planning attorney. This letter of instruction should be regularly reviewed to make sure that it is up-to-date and contains correct information.

Relatively speaking, the popularity of cryptocurrency is still new. With that, the rules and regulations surrounding how it can be managed are also evolving. Until then, we advise our clients to carefully and securely incorporate their digital assets into their estate plan.

If you have questions about any aspect of your estate planning, please give me a call.

Katherine Liebner is an attorney at Gross Shuman P.C. Ms. Liebner focuses her practice in the areas of estate planning, estate and trust administration, and labor and employment law. She can be reached at 716.854.4300 ext. 236 or [email protected]