When you own cryptocurrency like Bitcoin, or other assets that use blockchain technologies (like NFTs), it's absolutely vital to include these assets in your estate plan. Cautionary tales of Bitcoin investors leaving behind massive wealth, but no way for family members to access it, abound. Even the most technologically savvy beneficiaries can't do anything if they don't have access to your crypto accounts or wallets and passkeys.
One way to ensure your loved ones will inherit the assets is to leave the cryptocurrency through a will, along with a guide for your loved ones on how to access it. Another popular way to pass along crypto is to leave it through a trust.
There are several advantages to using a trust. For example, a trust:
A trust is a flexible estate planning tool that can be created while you're alive or after you pass away through your will. A living trust is made by transferring some of your property to the trust during your lifetime. Living trusts are popular because they can be revoked or changed during the trust maker's lifetime. During life, trust makers usually act as trustees of their own trusts, managing trust assets just as they did before they transferred their property into the trust. When a trust maker dies, the successor trustee (named in the trust) will take over. Some trusts will direct the successor trustee to distribute trust property to beneficiaries, ending the trust. Other trusts will instruct the successor trustee to continue to manage trust property for the benefit of the beneficiaries.
Putting your cryptocurrency in a trust makes it less likely that your cryptocurrency will go undiscovered after your death—because the existence of your cryptocurrency will be documented in the trust. This is important because, unlike other property, cryptocurrency is not an easily discoverable asset. It has little to no paper trail, so it's difficult for your loved ones to discover it after you die. If they don't already know you have cryptocurrency and how to access it, this asset might be lost to them forever.
However, when your cryptocurrency is in a trust, it's documented and you've made a plan for what should happen to it when you're dead. Your trust should tell your successor trustee that your cryptocurrency exists, where to look for it and how to access it, and what to do with it. This greatly reduces the possibility that your cryptocurrency will be lost after you die.
While your trust alerts your successor trustee to the existence of your cryptocurrency (and states who should get it), you don't have to leave all of the details of your cryptocurrency in your trust document. Instead, it's wise to create a separate document that describes in detail how to find and access your cryptocurrency. You can leave this "access plan" for your successor trustee or whoever will need to access your coins or assets after you die.
When you die, the law requires (most of) your property to go through a legal process called probate. During this process, your estate is submitted to the court, and your property is distributed to your loved ones either according to the terms of your will or, if you die without a will, intestacy laws. This process can take anywhere from a few months to years and can be quite expensive, especially if the estate must pay a lawyer or an executor, or both.
If you leave your cryptocurrency through your will (or you make no plan at all), your cryptocurrency will go through probate and your beneficiaries won't have access to your cryptocurrency until the probate process is complete—usually many months after your death. With the volatile nature of the cryptocurrency markets, your coins could lose tremendous value before your beneficiaries ever get access to your digital wallet.
If you use a trust instead, the property in your trust won't go through the probate process when you die. Instead, your successor trustee will immediately have the right to access and distribute your cryptocurrency following the terms of your trust. Keeping your cryptocurrency out of probate will save your beneficiaries time and money because they will get access to your coins faster and with fewer court cost.
Another benefit of adding cryptocurrency to a trust is that you can maintain more privacy for you and your beneficiaries. During the probate process, a will is filed with the court and can become part of the public record. So if you leave your cryptocurrency through your will, information about your cryptocurrency might not remain private.
This prospect is unappealing for people with large cryptocurrency assets. Any public information about your cryptocurrency will make it easier for hackers and scammers to target your loved ones.
In contrast, trust documents aren't part of the public record and only your successor trustee will need to know about your cryptocurrency. This added layer of privacy will help maintain the security of your Bitcoin for you and your beneficiaries.
Creating a trust for your cryptocurrency is a good idea if your beneficiaries are very young, aren't tech savvy, or are unable to manage their own finances. Why? A trust sets out a system of management for the cryptocurrency you leave behind.
If your beneficiaries receive your cryptocurrency through a will, legally, they will have direct access to your coins. In some cases, this may not be a good idea—particularly if your beneficiaries don't understand what cryptocurrency is or how it works. It might be overwhelming for those beneficiaries to learn about digital wallets, figure out cryptocurrency exchanges, and maintain all the security practices needed to secure the cryptocurrency they inherit.
Under a trust, your cryptocurrency will be managed by your successor trustee after you die. Your successor trustee will be responsible for accessing, maintaining, securing, and distributing your cryptocurrency according to the terms of your trust. So you can lay out exactly what should happen to your Bitcoin and give the responsibility of managing it to a person who can be trusted to know or learn how the system works. In this way, using a trust could be a great relief to your beneficiaries, especially in the wake of your death.
One of the greatest benefits of creating a cryptocurrency trust is maintaining some control of your investment even after you die. You can use your trust to dictate how an asset is used and for what purpose. This is different from leaving cryptocurrency through a will, which gives your loved ones complete control over your cryptocurrency after they inherit it.
For example, if you want your beneficiaries to stay invested in cryptocurrency for a specific period of time, the trust can hold your coins until then. This can prevent a premature sale of your coins if you believe your cryptocurrency will get more valuable as time goes on. A trust can also allow your loved ones extra time to understand cryptocurrency before they get control of it, or you can choose to have the trust manage this asset for them indefinitely. You can tailor your trust to fit the specific needs of your loved ones.
There are some challenges unique to cryptocurrency trusts, but you can cover your bases by consulting an estate planning attorney or doing the necessary research. Putting Bitcoin in a trust isn't necessary, but it will ensure that your coins won't get lost after you pass away, and help maintain a level of privacy. A trust also provides a trusted manager for your coins and relieves your loved ones from the burden of trying to figure out cryptocurrency after you die.