What Happens to Your Crypto When You Die? Make a Plan, Or Lose Your Investment Forever

A photo to accompany a story about what happens to your crypto when you die GettyImages/lemonadeserenade/Illustration by Next Advisor
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In today’s digital era, the departed will be survived by their electronic footprints, such as iPhone photo albums, Spotify playlists — and cryptocurrency wallets. 

Whether you have $100 in your crypto wallet or you keep a lifetime’s worth of crypto savings stowed offline in cold storage, you should have a plan to help your next of kin access the money in case you die. An unknown amount of Bitcoin — which has max of 21 million coins — is likely already lost forever, thanks to early buyers who have died without a clear plan for succession and handing off their digital assets.

“It’s estimated that the total number of Bitcoin in existence won’t ever be 21 million because so many early adopters of Bitcoin have either died (without succession planning) or lost their wallet keys and can’t recover their funds,” says Kate Waltman, a New York-based certified public accountant who specializes in crypto and blockchain assets. 

If you’ve incorporated cryptocurrency into your investment portfolio, here’s what you should know about what happens to it when you die, and how to set up your digital wallets so your loved ones can access them securely.

Crypto Estate Planning: The Basics

Some 85% of crypto investors feel uncertain about how to incorporate crypto into their estate planning, according to a 2020 survey conducted by the Cremation Institute, an online resource for funeral planning services. 

Experts describe crypto estate planning as a delicate balance between security and accessibility. Bitcoin and all other cryptocurrencies are decentralized, meaning they weren’t issued by a central bank or authority. That makes it impossible for anyone to help access a loved one’s account when they die, unless they possess the security key (password) and/or seed phrase to unlock their wallet. 

“There’s a balance between creating security and setting up an adequate knowledge transfer that can be tricky to get right,” Waltman tells NextAdvisor.

The first priority, says Waltman, should be to set up storage for your crypto and NFTs under multiple layers of security — taking advantage of the extra security you get with hot and cold wallets. But then, you’ll need to explain to your loved ones how everything works. 

Pro Tip

Don’t assume your family members will know how to transfer your crypto assets back into U.S. dollars once they inherit them. Explain to them how crypto exchanges work, plus help them decide what they’ll do if they don’t want to keep investing in digital assets for themselves.

The Layers of Crypto Security

The first step in crypto estate planning is to create tiered back-up accounts to store your crypto assets, each with varying layers of security. 

“A lot of people bought cryptocurrency for the first time this year, and they probably bought it online through some sort of exchange,” says Mint certified financial planner Brittney Castro

But when you begin buying and trading higher volumes of crypto, you might want to upgrade your storage. Decide what amount of crypto you want to keep in an accessible online crypto exchange to be used for daily investing, buying, selling, and trading. Your loved ones will be able to access this exchange by signing on to your exchange just like any bank portal or member website. All they will need to know is your password and username, and maybe your phone or email passwords to receive a two-step verification code.

Experts recommend people with more significant sums of crypto move a chosen percentage of it into either or both of the more secure back-up options. There, it will be less vulnerable to hacks — but harder for someone else to access too.

In short, the storage options from least secure to most secure are:

  1. Centralized crypto exchanges (like Coinbase, for example)
    1. How to log in: Username and password
    2. To recover or backup account information: Two-step verification and/or contact customer service
  2. Hot wallets (aka mobile wallets) that are un-hosted (not on a centralized platform)
    1. How to log in: Private wallet key
    2. To recover or backup account information: You’ll need a 12- or 24-word secret seed phrase 
  3. Cold storage (aka hardware wallet) that functions like a digital safe via USB drive
    1. How to log in: Private wallet key
    2. To recover or backup account information: You’ll need a 12- or 24-word secret seed phrase 

“Only tell your trusted family, loved ones, or financial professionals your wallet information,” says Castro. “Make sure somebody knows you have crypto in a cold wallet and they can access that.”

And when it comes to due diligence when setting up your cold storage, buy directly from the vendor, says Castro: “Don’t buy through Amazon or anything like that. And follow the specific steps of transferring from online into the wallet. Make sure you’re keeping all of that data secure.”

Learn more about how to manage your wallets.

How to Set Up a Successful Crypto Estate Plan

You don’t need to go full-on doomsday, but you do need to have a plan — including a fireproof safe and a physical copy of your security phrases.

Here’s Waltman’s step-by-step plan to secure your wallets.

  1. Store your cold storage hardware wallet in a fireproof lockbox. 
  2. In one or more separate locations, store physical documents describing each wallet, where it is, and how to access it. 
  3. Describe whether each wallet in your document is an exchange, mobile wallet, or hardware wallet.  
  4. Include all of the security keys, seed phrases, usernames, and password information with instructions for each — including cell phone codes for the mobile wallets are on your phone.

“Never store any of this information on the internet,” says Waltman. “You’re opening yourself up to theft.”

Finally, go over everything thoroughly with your partner and/or next of kin: “I taught my wife how to use the seed phrases and access the wallets,” Waltman says.

Options to Save, Invest, or Sell the Crypto

Once your loved ones know how to access your crypto, they’ll need to know their options for how to spend, invest, or save it. Don’t assume that everyone will be as comfortable as you dealing in crypto, says Waltman. Keep your plan simple.

“I may feel comfortable with exposure to different altcoins and NFTs,” Waltman says. “But if I died, I would want my wife to move our funds into Bitcoin and reduce exposure to more volatile tokens, knowing she won’t have the interest that I had in keeping informed about the markets.”

Another option is transferring the crypto from its wallet back onto a centralized exchange, then selling it for U.S. dollars. There are tax implications to this choice, as selling crypto is viewed by the Internal Revenue Service (IRS) as selling assets.