Don't Forget to Include Your Cryptocurrency in Your Estate Plan
Many people view cryptocurrency as the next great investment strategy. But, like with any investment, sometimes things don't go as planned. If you own crypto or NFTs, you need to include them in your estate plan.
We can all learn something from these three horror stories:
Make sure to update your estate plan to include your crypto investments
Have a system in place for recording passwords of your crypto wallets
Make sure your trusted decision makers know where to find your assets when the time comes
How Cryptocurrency Can Impact Estate Administration
Matthew Mellon, a famous investor and businessperson, died in April 2018. At the time of his death, his estate was estimated to be worth approximately 200 million dollars! Much of his wealth came from a $2 million investment in the cryptocurrency XRP.
Mellon died with an outdated will that did not mention his cryptocurrency. It was later discovered that he kept the keys to his cryptocurrency wallets on various devices. These keys were located throughout the county, and not all of them were in his name. Fortunately, his lawyers were able to access his crypto by working with Ripple, the company that owns XRP. However, this is an extremely rare case. Do not expect a cryptocurrency company to work with you, or your family, to give you access to your assets.
Because the value of XRP fluctuated by approximately 30% in the weeks after Mellon’s death, the assets needed to be liquidated quickly. Mellon's estate had outstanding debts, income tax obligations, and estate tax to pay.
Unfortunately, Mellon had entered into an agreement with Ripple that limited the amount of XRP he could sell at a given time. This delayed the wrapping up of his affairs. By the end of 2019, his estate was worth less than half of the original value at his time of death. This is because the XRP had lost about two-thirds of its value.
If Mellon had consulted a trusted financial advocate, they might have been able to craft an effective estate plan that included his crypto investments. His estate might have had the necessary funds to pay his outstanding obligations without relying on XRP. Additionally, he could have made it easier for his fiduciaries to access his cryptocurrency, so they can start the sell-off sooner when the value was higher.
Lesson Learned: Make sure to talk to your lawyer and financial advisor if you want to include your cryptocurrency in your estate plan. And, make sure to update your estate plan with major life changes.
Don't Forget Your Crypto Wallet Password
Stefan Thomas, a software developer, was an early adopter of Bitcoin. To store his Bitcoins in a digital wallet, Thomas used a USB hard drive known as an IronKey. Later that same year, he lost the password to it. IronKey allows only ten attempts to enter the password before it is encrypted forever.
As of January 2021, he had only two attempts remaining. Although the value of Bitcoin has dropped significantly, his Bitcoin was still worth well over $100 million. But, unless he remembers his password or is somehow able to get around it, he will never see that money.
This should serve as an important lesson for all of us. Items and accounts that require a password do so for a reason. However, we cannot always assume that we will remember it or that someone else will be able to retrieve it for us.
Lesson Learned: You must have a system in place to make sure that you or your trusted decision-makers can access your passwords when necessary.
Bitcoin Gone Forever
Matthew Moody, a miner of Bitcoin, tragically passed away in a plane crash at the age of 26. No one, not even his parents, knows how to go about finding the Bitcoin he invested in. No one knows how much he owned, where it was stored, or how to access it.
Depending on how much he owned at the time of his death, this could be a huge sum of money for his loved ones. But, because Moody didn't share this information with his family and didn't have an estate plan, the location of his potential fortune will forever remain a mystery.
Lesson Learned: Make sure your trusted decision-makers know where to find your assets when the time comes. No matter how old you are.
How to Include Crypto and NFTs in Your Estate Plan
When someone dies, an important part of the estate administration process is to determine the decedent's assets. Your loved ones may go through your mail, search your home, and search your computer. But, cryptocurrency can be a lot harder to find than traditional assets.
Depending on the type of wallet you use, it may not be obvious to your loved ones that you own something of potentially high value. This is why you must have a plan for your cryptocurrency.
A trusted person needs to know:
That you own it
The type of crypto you own
How it is stored
Where it is stored
How to access it when necessary
What your wishes are for it after your death
Failing to address this planning will leave your family without a clue as to what you truly owned at your death.
Cryptocurrency is an amazing advancement for secure and private transactions. This groundbreaking investment strategy has the potential to forever change how we view money and financial transactions. Because it is so new, finding and managing cryptocurrency may present some barriers. To best protect yourself and your loved ones, we encourage you to speak with a trusted financial advisor at our sister company, DuPont Wealth Solutions. Call 614-408-0004 to schedule an appointment. We are qualified to advise you on legal, financial, and tax matters.