If you’re just dipping your toe into cryptocurrency, it can be hard to imagine your crypto as something worth talking to an estate attorney. But that $100 of fun money can add up to a significant percentage of your total investment, sometimes overnight. Sorry to be the downer, but YOLO – so have a plan for your crypto in case you die.
Crypto accounts are not like traditional investment accounts. They may be more vulnerable to security issues, and you usually can’t name a beneficiary. For example, if you store your crypto on a physical device at home and some friends know your key – a type of password that gives access to a crypto wallet – one of those so-called friends could walk into your house. and steal your crypto just as easily as they could walk with your great-grandmother’s diamond earrings. Or, if you haven’t shared the keys with anyone, your crypto is lost forever.
It is important to understand how to store your crypto securely and communicate your wishes to your loved ones, just as you would with any other valuable asset.
Know how your crypto is stored
You trade and store crypto in the wallet, but not the leather type. crypto wallet Can either be digital and managed on an app or website, or can be physical like a thumb drive. The type you choose depends on what you want to do with your crypto.
– Hot Wallets: These are used for crypto trading and shopping. The upside is that they are generally free and convenient, but the downside is that they are less secure because they are always connected to the Internet.
– Cold Wallet: These are used to store crypto for a long period of time. Think of it like putting your crypto in the freezer.
A hot wallet is like a checking account – with money going in and out – while a cold wallet is like a savings account, where you keep money over a long period of time. You can have both at the same time.
Anyone who holds the key – that is, the one who has custody of the password of randomly generated numbers and letters – has access to your crypto. This could be you, a third-party crypto exchange or a hybrid of both.
“As a long-term solution, don’t put more than you’re willing to lose on a third-party exchange,” says Alex Mezius, founder and managing attorney at James River Law in Richmond, Virginia. “You don’t control the keys. They can freeze or attack your funds.” As the value of your crypto increases, Mezius recommends a self-custodial or hybrid option.
Keep Your Crypto Safe, Yet Accessible
A cold wallet can be a small physical storage device that is easy to misplace. Your cold wallet requires a PIN code for access, plus you set a recovery phrase as a backup in case you lose your keys. According to Mejias, it’s essential to have a fireproof safe at home or a safety deposit box at the bank, but don’t store your cold wallet in the same place where your keys, PINs and recovery phrase happen. If someone finds all of those items together, it’s a buy-by-bitcoin.
Above all, design a storage method that makes sense. “Don’t be so cute that you make up some complicated system you can’t remember,” Mejias says. He has heard of people writing down their keys and cutting the paper into three pieces, hiding each piece in a different place. “It sounds like a good idea, but it’s a terrible idea. If you lose one of those three, it’s gone forever. You’ve tripled your risk.”
Make elaborate plans for loved ones
Name a beneficiary in your will and add a document to your estate plan that lists any passwords, PINs, keys, and instructions for locating your crypto assets and your cold wallet. If you have an account with a cryptocurrency exchange, your beneficiary can contact customer support to notify you of your death.
According to a Coinbase representative, there is a process to guide Kin, including one-on-one assistance from a Coinbase analyst. Gemini needs a death certificate and a power of attorney to initiate the transfer from the deceased person’s account.
“We hope to simplify this process in the future, so we are working to add account beneficiaries functionality to our platform,” a Gemini representative said in an email.
Update your plan and your wallet
Make sure your assets go to the right people by keeping your estate plan updated, especially after a life change like marriage or divorce. Provide up-to-date instructions so that beneficiaries can access your assets. Cold wallets also require maintenance in the form of firmware updates from time to time. This can help ease the burden on your loved ones and hopefully prevent fights as they dispose of your assets after your death.
“Crypto has the potential to be a very explosive thing because the value can get so big so quickly,” Mejias says. “When you think about five, 10 years from now, we’re talking about potentially a lot of money.”
This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.
This column was provided by personal finance website NerdWallet to The Associated Press. Sarah Ratner is a writer at NerdWallet. Email: [email protected] Twitter: @SaraKRathner.
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