What Happens to Cryptocurrency When You Die?

It may not die with you, but cryptocurrency can spend eternity in a cloud if you pass away before sharing access details.

You know your cryptocurrency has value, but what happens to that value when you die? Will your beneficiaries inherit it along with your retirement account and personal property? The truth is: Unless you leave clear instructions regarding how to access your crypto assets, those assets will be stuck somewhere in a cloud and of no use to your heirs.

The average age of crypto investors is 38 years old, young enough that many have not gotten around to creating a will or trust. To figure out how many people have a plan for what will happen to their cryptocurrency after they die, The Hustle surveyed 194 cryptocurrency investors. And 56% of those surveyed did not have a will. Of the 44% who had a will, less than 1 in 4 included digital assets.

Gerald Cotten’s $250 million crypto lesson

A man named Gerald Cotten is a perfect example of what can happen if you leave this world without a plan for passing your cryptocurrency on to loved ones. Cotten, CEO of the crypto exchange Quadriga, was 30 years old when he either died or faked his own death (depending on who's telling the story) in India. And because Cotten held the private keys to $250 million worth of his clients' cryptocurrency, he took that money with him. While plenty of people have looked for a way to access the funds, Cotten was the only one who could have retrieved the assets, leaving his investors out in the cold.

The problem

As you purchase cryptocurrency, the digital key required to access the currency is stored in a virtual wallet. The actual currency remains in a ledger in the blockchain. Only you have possession of the 256-bit long string of alphanumeric characters that make up the key. In terms of protecting your assets, it's a great system. The problem is, someone else must have access to the key if anything happens to you.

As much as he knew about cryptocurrency, Cotten did not take the necessary steps to protect his clients, wife, or other beneficiaries.

READ MORE: Cryptocurrency Availability: Where Can You Buy Your Favorite Tokens?

How to protect your heirs

If you want your cryptocurrency to be of value to those you leave behind, take the following steps:

Update legal documents

Digital currency falls under federal and state laws regulating crypto assets. Most states have passed into law the Revised Uniform Fiduciary Access to Digital Asset Act (RUFADAA) that spells out the rights for beneficiaries in the event of the death (or incapacity) of a crypto asset owner. Even if you have a will in place, under RUFADAA, the beneficiary (or beneficiaries) you name on your online account take precedence over other legal documents, like a will, trust, or power of attorney.

Let's say you opened a cryptocurrency account years ago. At the time, you weren't married and didn't have any kids, so you named your brother as the beneficiary. Since that time, you've married and named your spouse to be the primary beneficiary. Unless you've gone back into your crypto account and updated the beneficiary designation there, your brother still has legal rights to the cryptocurrency when you die.

The first step you should take is to go into each cryptocurrency account and make sure the beneficiary is who you want it to be today.

READ MORE: 3 Ways to Benefit From the Current Crypto Crash

Have a will drawn

According to the legal site NOLO, it's possible to have a simple lawyer-drafted will written for around $300, although a price of $1,000 is more common. If you don't have one already, a will gives you a legal say in who gets what and helps protect your beneficiaries.

Make sure the attorney who writes your will includes all digital assets and you name a digital executor. If you've never written a will before, it helps to understand that an executor is someone who takes on the legal responsibility of paying your final financial obligations and making sure what's left over is transferred to your beneficiaries.

It may be easiest to name the same person as the executor and digital executor, but that's up to you. It's the digital executor who will have access to valuable information regarding your cryptocurrency. Once you've determined who the digital executor will be, decide on a backup, someone who can take over the digital executor's job if the person you named initially cannot serve in that capacity.

Clue the digital executor in

Let your digital executor know where to find the information they will need to access the cryptocurrency. Say you've purchased cryptocurrency through multiple crypto exchanges. Make sure your digital executor can easily retrieve a list of each website, along with login information, passwords, digital keys, and any two-step authentications you've chosen to use.

You don't need to hand the digital executor a copy of your cryptocurrency information. In fact, it can be dangerous to do so because if anyone else gets their hands on it, there is no way to prove it was yours. This is the same reason you should not provide specific details regarding access to your cryptocurrency in your will because once the will is moved to probate, it becomes a matter of public record, and anyone can read the details.

Instead, store the details associated with the cryptocurrency accounts in a secure place or multiple secure places. For example, you may have a copy in a safe and another in a safe deposit box. All the digital executor needs to know is how to get to the information following your death.

If you're concerned

Sharing the combination to your safe with the digital executor means they could potentially access it before your death. If you'd prefer not to do that, find out if the institution where your safe deposit box is located allows designation of a successor upon death. This means your digital executor would only be able to get into your safe deposit box following your death.

There are also a growing number of companies like Casa, a cryptocurrency custody startup. Casa recently launched a Bitcoin inheritance service that allows you to securely pass your Bitcoin to your beneficiaries. Its service minimizes the risk of someone stumbling across your instructions and accessing the cryptocurrency themselves.

Whether you opt for a high-tech or low-tech way of doing so, ensuring your loved ones have access to your cryptocurrency accounts after your death is the only way to make sure they benefit from your digital investments.

The Motley Fool holds shares of and recommends Bitcoin.