After a loved one dies there are a lot of financial accounts to manage, but one of the most valuable assets could be difficult to find even if you know it exists. A growing number of Americans own digital currency, also known as cryptocurrency. The Pew Research Center estimates that 16% of Americans used or invested in cryptocurrency in 2021. Thatās a huge jump from the just 1% that did the same in 2015.
As more people own digital currency and it becomes more valuable, thereās a greater need for managing the asset during and after death. Unlike physical currency, cryptocurrency isnāt held in a bank account or any formal financial institution. The owner is tasked with storing and securing it in a digital wallet themselves. This is where family members can run into trouble if the digital currency owner passes away. Without proper estate planning in advance benefactors may not be able to claim digital currency.
What You Need to Know to Access Digital Currency āæ After a Death
The executor of a will is responsible for managing a personās estate after their death, including digital assets like cryptocurrency. But itās not enough to know the digital currency exists. There are a few key pieces of information that you need to know to access digital currency after a loved oneās death. Without the information the cryptocurrency will be inaccessible.
Ideally, digital currency is included in a last will and testament, but that isnāt necessary. As long as you know where the cryptocurrency is located and how to unlock it the digital currency can be passed on to an heir.
*IMPORTANT NOTE: Specific information regarding how to access digital currency shouldnāt be included in the will. A will can become public record, which means someone else could use the information to access the cryptocurrency. Instead, itās better to note the existence of digital currency and then include the access information in a private memorandum.
Where the Digital Currency is Located š
Hunting down cryptocurrency can be a painstaking process that takes a long time simply given that it could be in so many places. Cryptocurrency is located in a āwalletā, but itās not the type of wallet you put cash into. Since there are different digital currency storage options, itās important to know where cryptocurrency is located. It should be in one of following wallets:
- Hot Wallet – A hot wallet refers to an application that stores digital currency online.
- Cold Wallet – A cold wallet is a hardware device thatās connected to a computer in order to store and secure digital currency offline.
- Third Party Wallet – The third party wallet provider will securely store the cryptocurrency in their own hot or cold wallet. Typically, if digital currency is purchased through an exchange, stock broker or app it will be stored in a third party wallet.
- Paper Wallet – Just as it sounds, a paper wallet is simply a document that contains the access information for the digital currency.
The most secure option is a cold wallet, but itās not as convenient as hot and third party wallets. The one downside to third party wallets is that someone else technically has control over the digital currency. Of course, many people choose to spread their cryptocurrency across multiple wallets, which the executor of an estate will need to keep in mind.
How to Unlock š the Cryptocurrency
Knowing where the digital currency is located is the first step, but youāre only halfway there. Part of the reason an estimated 3.7 million Bitcoin alone have been lost is because the owner lost or forgot the access information.
Thereās always going to be some sort of security measure to keep cryptocurrency safely stored in its wallet. It can be a PIN code, password, private key š or combination of these. Access is going to vary from wallet to wallet, but thereās no way to get digital currency without the security codes.
There are actually two types of keys for a cryptocurrency wallet. Thereās a public key that allows people to send funds to the digital wallet. Then thereās the private key. The private key is whatās needed to spend or transfer cryptocurrency.
Some types of wallets can also have whatās known as a recovery phrase. This is a 12-24 word phrase for the cryptocurrencyās key that can be used if the hardware for a cold wallet is lost or you lose access to a hot wallet. The recovery phrase can also be used to transfer digital currency between wallets.
Owning digital currency is just one reason why itās so important to make advanced funeral arrangements and create a last will and testament. Failing to leave your loved one detailed directives means your cryptocurrency could be lost forever.