The growing trend of cryptocurrency continues, with more and more people choosing to invest in cryptocurrency. However, what happens to your crypto if you die or lose capacity? Who can it be passed on to and how can they access it?
If you die and your cryptocurrency password dies with you, your cryptocurrency will also die and your loved ones won’t be able to get the benefit of your cryptocurrency from your estate.
Therefore, adequate planning, including estate planning is essential when it comes to any investment assets, including your cryptocurrency assets like bitcoin for example.
What is cryptocurrency?
Cryptocurrency is a digital currency held in the virtual space. It’s mostly based on blockchain technology. Although some banks and financial institutions are now issuing their own crypto, it’s still generally not issued by a central authority.
Cryptocurrency accounts are unique and very different from money held in traditional bank accounts. These crypto accounts can be vulnerable to cyber-attacks, security issues and criminal activity, given that these digital wallets are online or stored on a storage device.
Storing cryptocurrency
Whilst many people store their cryptocurrency online as part of their digital or crypto ‘wallet’, you can also choose to store your wallet offline on a physical device such as a USB or external portable hard drive.
Storing your crypto wallet on a physical device that is not connected to the internet can afford some protection against cyber attacks and having your cryptocurrency stolen. However, it is also important to make copies of your crypto wallet as a failsafe in the event your USB accidentally ended up in the laundry.
Accessing your crypto wallet
As with most digital assets, when you set up your cryptocurrency account you need to set a password. This password is what provides you access to your crypto wallet. To ensure the security of your crypto wallet, this password is kept private, meaning you won’t be sharing it therefore avoiding (as much as possible) the risk of having your cryptocurrency stolen.
However, if you die or lose capacity, would your loved ones or attorneys (those you have listed in your Power of Attorney), know where to find your password or how to access your crypto wallet?
If the answer is no, then your cryptocurrency will be lost forever and your loved ones will never be able to access it. Therefore, you need to think about how you can appropriately manage and store your password so that your loved ones or attorneys could gain access.
You may, for example, set up a password manager, which is a program that allows you to securely store all your passwords, banking details are other sensitive information. There are a number of password managers available, and you should do your research before settling on one. Many of them will have a feature for “emergency access”. This allows you to share some or all of your access with someone you trust.
Dealing with cryptocurrency assets in your estate planning
Your Will
Your cryptocurrency accounts can be something that you include as part of your estate planning.
You may like to nominate one or more people as a beneficiary for your cryptocurrency. This can be done through your Will under a specific gift clause.
Alternatively, your cryptocurrency can form part of your residuary estate. A residuary estate is any portion of your estate/assets remaining after all specific gifts have been dealt with. Your residuary estate is then divided equally amongst your nominated beneficiaries.
In addition, you can also ensure the security of your crypto wallet and access to your wallet by providing the details of any cryptocurrency accounts, passwords and recovery phrases in a separate document to be stored with your Will. This could also include any instructions on how to find your crypto wallet (if it is stored on a physical device). The downside to this, of course, is that we are reminded to regularly change our passwords, given the rise in cyber threats. Each time you change a single password (let alone several), you would have to update the document stored with your Will.
Your Power of Attorney
If you were to lose decision-making capacity with respect to your financial matters, your appointed attorney(s) may need to access your crypto wallet, as part of managing your financial affairs. Therefore, you will also need to consider how your attorneys might be able to access your crypto wallet.
Once you have a valid Enduring Power of Attorney in place you might consider advising your appointed attorneys of the following:
- where they can find your crypto password(s); and
- where your crypto is stored (online crypto wallet or storage device).
Advising your attorneys of the above will ensure that they will be able to access your cryptocurrency if needed.
Get help with protecting your digital assets
Including your cryptocurrency as part of your estate planning will ensure that your cryptocurrency is gifted to whom you wish. We can also talk to you the options to ensure your crypto and other digital assets are secure and accessible upon your death or incapacity.
Want to discuss dealing with your cryptocurrency and digital assets in your estate planning? At David Davis, we’re highly experienced in all aspects of estate planning and protecting your wishes if you die or lose capacity.
Contact David Davis Lawyers
Phone: 03 9014 1299
Email: admin@ddavis.com.au