New digital wealth like cryptocurrency demands fresh thinking about your estate plan. Let's walk through exactly how to protect your crypto investments and make sure your family can access everything they're entitled to after you're gone.
Estate Planning Basics
First thing’s first: the basics. Before we can get into the more crypto-specific suggestions when it comes to estate planning, we need to discuss the foundational elements of estate planning. At a minimum, we believe our clients can benefit from having three essential documents in place: a will, Power of Attorney (POA), and an Advanced Healthcare Directive (also known as a Medical POA).
- Will: A will ensures your assets are distributed according to your wishes after your death. It also allows you to name an executor to manage your estate and settle any debts or taxes following your death.
- Durable Power of Attorney (POA): A POA allows you to designate someone to make financial or legal decisions on your behalf if you become incapacitated. It can apply to specific matters or be broader, giving full authority to your appointed agent. Make sure that your POA is durable, otherwise, it will be null and void the moment you are incapacitated.
- Advanced Healthcare Directive: This document appoints someone to make healthcare decisions for you if you're unable to make them yourself. It can also outline your preferences for medical care, offering guidance to your loved ones during difficult situations.
While these three documents form the foundation of most estate plans, many individuals may benefit from more advanced estate planning options, such as setting up trusts or other specialized estate planning vehicles. Trusts can provide more control over how assets are managed and distributed, help minimize estate taxes, and avoid the lengthy probate process for things like real estate owned outside your state of residence and more.
Steps to Ensure Cryptocurrency Is Included in Your Estate Plan
Don't let your crypto assets get lost in the shuffle when completing your estate planning. Here's what you need to do:
- Make a crypto inventory:Create a master list of every wallet address, backup phrase, and password. Your family can't claim what they can't find.
- List a beneficiary: Ensure that you have a beneficiary listed if your cryptocurrency is held in an account that allows you to designate one.
- Write clear access instructions:Give your heirs step-by-step directions for claiming your crypto without legal hassles.
- Collaborate with an estate planning attorney:Seek professional guidance from an attorney familiar with both cryptocurrency and federal benefits. This ensures your digital assets are properly documented and included in your overall estate plan.
State and Federal Legal Frameworks
Cryptocurrency laws vary significantly by state, especially regarding how digital assets are classified and transferred after death. Some states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which guides how fiduciaries can manage digital assets.
Cryptocurrency counts toward your estate's total value for federal tax purposes, which can hit your heirs with unexpected taxes. Your survivors must also navigate complex federal rules about transferring crypto assets — a process that differs from passing down traditional investments.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Protecting Digital Assets in Estate Plans
Keeping your crypto secure takes more than just writing down passwords. The wrong security approach means your heirs could lose access to your digital wealth — or worse, thieves could steal it first.
Best Practices for Digital Asset Security
- Use hardware wallets and password managers for secure storage.
- Enable multifactor authentication (MFA) for added protection.
- Back up wallet credentials in a secure location accessible to designated beneficiaries.
Sharing Access Without Compromising Security
Planning for access is as important as protecting your digital assets. A comprehensive digital asset plan should include:
- Private key and seed phrase sharing:Use secure methods to ensure beneficiaries can access your holdings.
- Documentation:Maintain clear instructions on accessing accounts while safeguarding sensitive information.
Planning Today for Peace of Mind Tomorrow
Integrating digital assets into your federal benefits estate plan requires careful thought and proactive steps. By understanding legal requirements and securing your cryptocurrency, you can avoid potential pitfalls and provide lasting security for your loved ones.
Have questions about estate planning for digital assets? Reach out to the team at Serving Those Who Serve at [email protected] to ensure your plan is on track.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
