Cryptocurrency, such as Bitcoin, is a virtual, modern, and non-governmentally issued take on money. This form of currency poses some highly interesting questions in the realm of estate planning.
Take, for example, an adult who has accrued a valuable sum of cryptocurrency and attends a law firm looking for a Will that encompasses the entirety of their assets, including their cryptocurrency. Questions about how this asset will be taxed upon their passing and, more pragmatically, how it will be transferred to a new owner can come up.
With the relative newness of the currency to the mainstream world and the ever-evolving governmental approach to attempting to regulate an independent industry such as this, there are some challenges to consider. We cannot know for certain how cryptocurrency will be treated from a tax perspective in ten or twenty years, but we can at least work to position the currency to be inheritable through proper preparation.
It is crucially important to find a way to transfer the security information such as usernames and passwords that correspond with cryptocurrency accounts. However, it is equally important to ensure that these same accounts are protected during the owner’s life.
One option for passing on account information could include writing down this information on paper or on a memory stick and storing it in a fireproof lock box, which is brought to the attention of your lawyer before they draft your Will.
Another option in the future may include something called a Dead Man’s Switch, which is still in the early years of creation through developers such as Joost Jager of Lightning Labs. The concept behind this technology is to prevent the potential for loss of cryptocurrency through a lack of proper account information given to heirs. Theoretically, it will work by requiring a cryptocurrency owner to confirm that they are alive through weekly virtual messages. If an owner does not respond when prompted for a week, then the cryptocurrency service could be triggered to consider the owner deceased and take actions to ensure the information is given to the correct living person. There are a lot of bumps to be worked out in this approach, and no set timeline for when/ if it will be launched.
We will see what time and innovation continues to bring to the table for cryptocurrency and estate planning.