“Cryptocurrency has become a new wrinkle in the development of an estate plan.”
The very nature of cryptocurrency as a secure digital asset is the result of the complete absence of any identifiable information associated with an individual crypto account. These types of assets are also not easily identifiable to executors or heirs, says a recent article, “Today’s Business: Cryptocurrency and estate planning” from CT Insider.
The only way an heir or designated fiduciary (like an executor) may gain access to crypto accounts after the owner’s death is to have the password or “private key.” Without it, there is no way to gain access.As a result, the cryptocurrency is worthless. Therefore, safeguarding the passwords, especially the crypto “seed” phrases, is critical.
The “key” to a person’s cryptocurrency must never exist only in the owner’s mind. The owner must never be the only person who knows where the passwords are printed, whether on a piece of paper, in an encrypted file on a thumb drive or laptop, or an online password manager.
At the same time, this critical information must be secure. How do you accomplish both?
Start by telling your estate planning attorney that you own cryptocurrency. Just as they wouldn’t be able to help protect a traditional asset if they didn’t know it existed, they will need to know you own cryptocurrency, so they can incorporate it into your estate plan.
To safeguard seed phrases and other passwords for estate planning purposes, consider these options:
A straightforward way of storing passwords and seed phrases is to write them down (legibly) on a piece of paper and store the paper in a secure location, such as a personal safe or safe deposit box.
Using a password manager can work. This is software used to store all passwords in an encrypted format. It allows the storage of secret seed phrases, passwords and other sensitive information, accessible through a single password. Be careful to select only a high-rated password manager from a recognized company. You should also never store seed phrases or passwords with the cryptocurrency wallet address to minimize the chances of hackers accessing your digital wallet.
Because of the importance of securing information from physical and digital threats, you may want to invest in a fire and water-proof safe and give a trusted friend or relative a means of accessing the stored information. In addition, as the security landscape continues to change, it’s essential to regularly change passwords and seed phrases to ensure digital assets remain secure and loved ones can access them if you become incapacitated or pass away.
Properly securing seed phrases and other passwords is a part of today’s estate planning. You and your estate planning attorney need to plan for digital assets to ensure that they are properly managed and passed on to loved ones without compromising sensitive information in a last will and testament.
Reference: CT Insider (March 18, 2023) “Today’s Business: Cryptocurrency and estate planning”