Digital assets, or more precisely, cryptocurrency, are growing exponentially in terms of value and popularity. Although cryptocurrency and digital assets may have made certain transactions simpler, they have complicated the estate planning process. Clients who have acquired such assets must incorporate them into their estate planning documents or risk losing them forever.  The traditional notion of distributing all assets via a residuary clause of a Last Will and Testament and then having an executor search for digital assets does not work in the new world of cryptocurrency.

What Is Cryptocurrency?

All cryptocurrencies are fundamentally the same. They are merely digital currency, which exist online and not in a material or tangible form. They are really just evidence of entry in a public ledger maintained through the use of blockchain technology. There are no physical coins or notes, nor are the funds controlled by a central government. The currency is encrypted and decentralized and, as a result, it is extremely difficult to counterfeit.  In its simplest form, when an individual purchases cryptocurrency, the purchase is associated with a public and private key. The public key is visible to the entire network of decentralized computers across the world and is a specifically recorded transaction with a unique identification that cannot be changed. A private key is the digital equivalent of a password and proves ownership of the cryptocurrency, which is stored in a digital wallet and is the only method of accessing the digital currency.

Unlike a traditional bank account, an owner (or a fiduciary such as an executor or trustee) cannot contact any central institution and request access to the funds if the private key is lost or stolen. Anyone who obtains a private key would have access to the owner's cryptocurrency so the key must be safeguarded and protected. Think of it as a safe with only one non-replaceable key. While third-party companies, such as Coinbase, have now established a "vault," that is, in essence, a safety deposit box for a user's private keys, those owners who continue to retain their private key must proceed with caution and plan accordingly. As discussed in greater detail, below, since cryptocurrency is really just a series of unique computer code, it cannot be stored in the same fashion as fiat (or traditional) currency. If a decedent fails to plan properly, his or her digital assets may be lost forever.