With the boom in demand for cryptocurrency came due speculation. The sudden increase in bitcoin’s value and others confounded many, and while some got attracted by unbelievable profits, others were skeptical of its authenticity.
Dealing in digital currency can be daunting. But if you’re here, then you probably already have or are planning on investing digital currency. The currency, though volatile, has proven profitable for many, maybe even you. If you, as a responsible individual, are planning for unfortunate events, then know that cryptocurrency may prove to be the least of your worries.
For the longest time, digital currencies were considered a scam by many. They are now, however, legally recognized commodities to be treated as property in estate planning, and they do have a procedural edge over other assets.
Transferring Digital Currency
There are several ways in which you can draft your estate plan, and we will get to them in a minute. However, as far as cryptocurrencies go claiming the digital currency is pretty much a hassle-free process. You don’t need to present the original death certificate or any other legal document to make the transfer.
In their estate plan, the owner will provide the fiduciary with the passcode. After their death, the fiduciary should transfer the currency to the beneficiaries, as stated in the estate planning document. However, since cryptocurrency is a virtual asset, there is no governing its transfer.
One of the key elements that you need to discuss with your estate planning attorney when discussing the transfer of virtual assets is asset protection. Draft an effective access plan to develop a secure network through which you ensure that only the intended recipient receives the assets. Here are some key points you need to keep in mind:
- Choose a person you can blindly trust to gain access to the cryptocurrency. The person must have basic knowledge of cryptocurrency and that they aren’t the heirs of the estate.
- Draft a detailed instruction document which lists down how much currency there is, where it is placed, and the software or hardware needed to access it. Make sure you do not include sensitive information like access codes or key.
- Maintain a hardware wallet in a waterproof and fireproof container stored in a safe location that is access controlled. The hardware wallet acts as your backup in case of emergencies and is a great way to secure your virtual assets.
- If you want to be extra thorough, you can also include a secondary hardware wallet as an additional backup in a separate safe. Do not forget to protect it by encasing it in a water and fireproof container.
No matter what your choice of estate document is, these steps are essential to safeguarding your assets. They guarantee that your valuables reach your loved ones safely.
A will may be the most commonly known and widely used estate document. It is a legal document enlisting your wishes and desires as to matters of your property. It contains a detailed set of instructions as to how and who is to receive what asset. When dealing with cryptocurrency, it should list down the intended recipients, respective amounts, and who the distributor will be.
A living trust is also a legal document, much like the will. However, a will is only a distribution plan for your assets upon your death. While a living trust not only lists down beneficiaries of your assets but also legally places your money in a trust for your benefit. In a living will, you will also list down a successor trustee to handle the transfer process.
Power of Attorney
A power of attorney gives one person the legal right to act on behalf of another person who is either underage, mentally unstable, or suffers from some form of disability. In case the principal suffers from some form of mental illness, you must include language in your estate planning document to guarantee the effective transfer of information to the recipient of funds.
Living wills are slightly more complicated than wills. They state how a person wishes to receive the end of life medical care in case of an unexpected medical condition where they are unable to communicate their wishes.
An essential part of estate planning with cryptocurrency revolves around nominating a trustee. In case they go rogue and decide to keep the money for themselves, your beneficiaries will only be able to trace the money and not recover it.
The way cryptocurrency works is different from the way fiat currency does. Digital currency transactions take place through the blockchain technology. It maintains a public digital ledger that lists down all transactions but mentions no way of retracting them.
Make sure you discuss all aspects of distributing cryptocurrency with your estate planning attorney. Only with their guidance will you be able to draft a foolproof distribution plan for your virtual assets.