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What Happens To Cryptocurrency When You Die?
When you die, your cryptocurrency will be stuck in a cloud and of no use to your heirs. Don't leave your heirs in the dark about how to access your digital assets.
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FAQ
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If you pass away without revealing the necessary access information, your bitcoin may not perish along with you, but it may spend all of eternity locked up in a cloud.
Key points
If you pass away without having a strategy in place for your bitcoin, it is equivalent to letting it be lost forever.
If you want to ensure that the people you care about get your bitcoin after you pass away, you will need to make active efforts to make that happen.
You are aware that the cryptocurrency you own has value, but what happens to its value after you pass away? Will your heirs be able to inherit it in addition to your personal property and retirement account? The unfortunate reality is that if you do not leave specific instructions about how to access your crypto assets, those assets will be trapped somewhere in the cloud and your heirs will not be able to utilize them.
The typical investor in cryptocurrencies is 38 years old, which is still young enough that many of them do not yet have a will or trust established in their name. The study of 194 cryptocurrency investors that was conducted by The Hustle aimed to determine the percentage of individuals who had made preparations for what would happen to their digital assets after they passed away. In addition, 56% of individuals who participated in the poll did not have a will. Less than one quarter of those who had a will made provisions for their digital possessions.
Gerald Cotten’s $250 million crypto lesson
A guy by the name of Gerald Cotten serves as an excellent illustration of what may take place if you do not make preparations in advance to ensure that your loved ones are able to inherit your bitcoin holdings after you die. Cotten, the Chief Executive Officer of the cryptocurrency exchange Quadriga, was just 30 years old when he allegedly died or faked his own death in India, depending on who is presenting the tale. And since Cotten had the private keys to cryptocurrencies worth a total of $250 million that belonged to his customers, he took that money with him when he left. Cotten was the only person who could have reclaimed the assets; therefore, his investors were left in the lurch as a result of the situation. While many individuals have sought a means to access the monies, Cotten was the only person who could have done so.
The problem
When you make a purchase using bitcoin, the private key that may be used to access the money is added to a digital wallet on your computer. The real money stays in a record on the blockchain. You are the only one who has access to the 256-bit-long string of alphabetic and numeric characters that constitutes the key. It's an excellent strategy for keeping your possessions safe, in case you were wondering. The trouble is, someone else must have access to the key if something happens to you.
Cotten did not take the essential precautions to safeguard his customers, his wife, or any other beneficiaries, despite the fact that he had a good understanding of cryptocurrencies.
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How to ensure the safety of your inheritance
Take the following steps if you want the value of your bitcoin to be preserved for those who are left behind after your passing:
Update legal documents
Laws on both the federal and state levels regulate crypto assets, which include digital money. The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which outlines the rights that beneficiaries are entitled to in the event that a digital asset owner passes away (or becomes incapable of doing so), has been enacted into law by the majority of states. According to RUFADAA, the beneficiary (or beneficiaries) you designate on your online account take priority over other legal papers, such as a will, trust, or power of attorney, even if you already have one in place. This is the case even if you have a power of attorney in place.
Suppose you joined the bitcoin market several years ago and created an account. Because you weren't married and didn't have any children at the time, you made your brother the beneficiary of the insurance policy. Since then, you've been married, and you've designated your new spouse as the principal recipient of the inheritance. If you haven't logged into your cryptocurrency account in a while and amended the beneficiary designation there, your brother will continue to have legal rights to the bitcoin after you pass away.
Your very first order of business should be to go into each of your bitcoin accounts and check that the beneficiary is set to be exactly who you want it to be right now.
have a will drawn
It is possible to have a basic lawyer-drafted will created for around $300, as stated on the legal website NOLO; nevertheless, it is more normal for the amount to be $1,000. If you do not already have a will, drafting one will give you a legal voice in who receives what and help safeguard the people you care about after your death.
Be sure that the attorney who creates your will takes into account all of your digital assets and that you choose someone to act as your digital executor. If you have never written a will before, it is helpful to understand that an executor is a person who assumes the legal responsibility of paying your final financial obligations and making sure that whatever is left over is distributed to your beneficiaries. If you have never written a will before, it is also helpful to understand that an executor can be anyone.
It could be simpler to designate the same person as both the physical executor and the digital executor, but the decision is ultimately yours to make. The digital executor is the only person who will have access to sensitive information about your cryptocurrency. When you have decided who will act as the digital executor, the next step is to choose a backup, a person who is capable of taking over the duties of the digital executor in the event that the person you first chose is unable to carry out those responsibilities.
Clue the digital executor in
Make sure that your digital executor is aware of the location of the information that they will need in order to access the cryptocurrency. Take, for example, the fact that you have acquired cryptocurrencies via a number of different crypto exchanges. Be certain that your digital executor will be able to quickly access a list of all the websites you use, along with the login information, passwords, digital keys, and any two-step authentications that you may have selected.
You do not need to provide the digital executor with a copy of the information pertaining to your bitcoin holdings. In fact, doing so might be risky since there is no way to establish ownership of the item if it is taken by another person and later found in their possession. This is the same reason why you should not specify precise instructions about access to your bitcoin holdings in your will. Once the will is taken to probate, it becomes a matter of public record, and anybody may read the specifics of the will.
Instead, it is recommended that the information linked with the cryptocurrency accounts be stored in a safe location, or in many safe locations. You may, for instance, keep one duplicate in a safe and another in a safe deposit box at your bank. Following your passing, the digital executor just needs to know how to access the information stored on your devices.
If you're concerned
If you provide the digital executor with the combination to your safe, it is possible that they may be able to access your assets before you pass away. Whether you would rather avoid doing that, you should find out if the financial organization that houses your safe deposit box permits the selection of a successor following the owner's death. This indicates that the only time your digital executor would be allowed to access your safety deposit box is after you have passed away.
There is also an increasing number of firms just like Casa, which is a company that deals in the custody of cryptocurrencies. Recently, Casa has introduced a Bitcoin inheritance service that enables you to safely transfer Bitcoin to recipients of your choosing after your death. Because of its service, the possibility of someone discovering your instructions and gaining access to the bitcoin for themselves is significantly reduced.
The only way to guarantee that your loved ones will profit from your digital assets is to make it possible for them to access your bitcoin accounts after your passing. This may be accomplished in either a high-tech or low-tech manner, depending on your preference.
Conclusion
One of the most significant benefits of using a cryptocurrency wallet is that it is impenetrable while the owner of the wallet is still alive. Having said that, this won't do you much good after you've passed on. Since you are now aware of the measures you must take to guarantee that your bitcoin is distributed to the appropriate parties, you can rest easy knowing that your loved ones will be provided for.
FAQ
What happens to a person's cryptographic keys after they pass away?
Cryptocurrency is considered an asset for the purposes of the probate process, much like real estate property and other belongings that are owned in your name. This indicates that it must go through the process of probate, which is a legal procedure overseen by the court that is used to distribute your estate after you pass away, before it can be officially transferred to the beneficiaries you have designated.
How is cryptocurrency passed down through families?
Investors who use conventional brokerages have the option to choose a beneficiary for their accounts, and in certain instances, they are even obligated to do so. As long as the beneficiary can prove who they are and that the account holder has died, they will be able to inherit the money in the account if the investor dies.
When I die, what happens to the money in my Coinbase wallet?
The process of designating a beneficiary for your Coinbase account should often be handled by an attorney who specializes in estate planning. Your Coinbase account would be passed on to your heirs according to the terms of your will or other plans made with your lawyer, just like the vast majority of other assets.
If anything were to happen to me, what would happen to my Binance account?
If you would like your loved ones to be able to erase your online presence after your death on sites such as Binance, you should provide them with your login details. If you are in possession of the login credentials of a person who has passed away, you are able to terminate their Binance account by following the exact same procedures that you would take to end your own account.
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
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