Including cryptocurrency, such as Bitcoin, and other blockchain-based assets like NFTs, in your estate plan is crucial. Stories of Bitcoin investors leaving substantial wealth inaccessible to family members highlight the importance of proper planning. Even tech-savvy beneficiaries are helpless without access to crypto accounts, wallets, and passkeys.
To secure the inheritance of cryptocurrency assets, one effective method is to include them in a will, accompanied by instructions for your loved ones on accessing them. Alternatively, using a trust offers several advantages:
- Reduces the risk of losing cryptocurrency post-death.
- Bypasses probate, saving beneficiaries time and money.
- Maintains the privacy of your cryptocurrency, shielding it from hackers and scammers.
- Appoints a trusted individual to handle and oversee your Bitcoin, alleviating the burden on beneficiaries.
What Is a Trust?
A trust is a versatile estate planning tool that can be established while you’re alive or posthumously through your will. Living trusts involve transferring property during your lifetime, allowing for revocation or modification. Trust makers often serve as trustees during their lives, managing assets as usual. Upon the trust maker’s death, a named successor trustee takes charge. Depending on the trust’s terms, the successor trustee may distribute assets to beneficiaries, concluding the trust, or continue managing assets for beneficiaries’ benefit.
Placing Bitcoin in a trust ensures that your loved ones are informed about your cryptocurrency holdings
Transferring your cryptocurrency to a trust diminishes the risk of it being overlooked after your demise, as the trust documentation explicitly acknowledges its existence. Cryptocurrency, being a less traceable asset, can easily go unnoticed without proper documentation. In a trust, your successor trustee is informed about the cryptocurrency’s presence, where to locate it, how to access it, and the intended course of action. This proactive approach significantly minimizes the chances of your cryptocurrency being overlooked or lost after your passing.
While the trust outlines the existence and intended recipients of your cryptocurrency, specific details on how to find and access it can be detailed in a separate document. Creating an “access plan” offers comprehensive instructions for your successor trustee or anyone responsible for managing your cryptocurrency assets after your death.
Adding Cryptocurrency to a Trust Avoids Probate
Upon death, legal procedures, known as probate, generally apply to most of your property. In this process, the court reviews your estate, and your assets are distributed to your heirs based on your will or intestacy laws if there is no will. Probate can be a time-consuming and costly process, extending from a few months to several years, particularly if legal professionals or executors are involved.
When cryptocurrency is bequeathed through a will or no plan is made, it undergoes the probate process, delaying beneficiary access until the completion of probate—often months after the demise. Given the volatility of cryptocurrency markets, the coins may significantly devalue during this time, affecting the ultimate value received by beneficiaries.
Opting for a trust circumvents the probate process for assets held within it. In the event of your demise, the successor trustee gains immediate access to and distribution rights for your cryptocurrency, adhering to the trust’s stipulations. This approach expedites beneficiary access, saving time and reducing associated court costs by bypassing the probate system.
Trusts Keep Cryptocurrency and NFTs Private
Inclusion of cryptocurrency in a trust provides an additional advantage of preserving privacy for both the asset owner and beneficiaries. Wills filed during the probate process become public records, potentially exposing information about cryptocurrency holdings. This lack of privacy is concerning, especially for individuals with substantial cryptocurrency assets, as public disclosure could make their loved ones targets for hackers and scammers.
On the contrary, trust documents remain private and are not part of the public record. Only the successor trustee needs knowledge of the cryptocurrency holdings. This heightened level of privacy enhances the security of Bitcoin for both the owner and beneficiaries, minimizing the risk of unauthorized access or malicious targeting.
A Trust Provides Help for Your Beneficiaries
Establishing a trust for your cryptocurrency proves beneficial, especially when your beneficiaries are young, lack technological expertise, or are unable to handle their finances. A trust outlines a management system for the cryptocurrency you bequeath.
If beneficiaries receive cryptocurrency through a will, they gain direct access to the coins. However, this may not be ideal, particularly if beneficiaries are unfamiliar with cryptocurrency concepts and operations. Managing digital wallets, understanding cryptocurrency exchanges, and implementing necessary security practices can be overwhelming for them.
In contrast, a trust places the responsibility of managing your cryptocurrency in the hands of a successor trustee after your passing. The trustee takes charge of accessing, maintaining, securing, and distributing the cryptocurrency according to the trust’s terms. By clearly defining the desired actions for your Bitcoin, a trust ensures that the responsibility falls on someone trustworthy and capable of understanding or learning the system. This approach provides relief to beneficiaries, especially in the aftermath of your demise.
Controlling Your Cryptocurrency Through a Trust
Creating a cryptocurrency trust offers a significant advantage by allowing you to retain some control over your investment even posthumously. Through the trust, you can specify the purpose and usage of the asset. This differs from leaving cryptocurrency in a will, where your loved ones gain complete control over the inherited cryptocurrency.
For instance, if you wish your beneficiaries to remain invested in cryptocurrency for a specific duration, the trust can hold the coins until that predetermined time. This provision helps prevent a premature sale of the coins, particularly if you anticipate an increase in their value over time. Additionally, a trust can provide your loved ones with extra time to comprehend cryptocurrency concepts before taking control, or you may opt for the trust to manage the asset on their behalf indefinitely. The flexibility of a trust allows you to tailor it to the specific needs of your beneficiaries.
Crafting an estate plan for your cryptocurrency and NFTs involves unique challenges, but consulting with an estate planning attorney or conducting thorough research can help address them. While putting Bitcoin in a trust isn’t obligatory, it serves as a safeguard against the potential loss of coins after your demise and adds a layer of privacy. Moreover, a trust designates a reliable manager for your coins, easing the burden on your loved ones and sparing them from navigating the intricacies of cryptocurrency after your passing.