What happens to your cryptocurrency when you die

4 min read

When you inherit Bitcoin, Ethereum, or other forms of cryptocurrency

  • When someone who owns cryptocurrency dies, their digital wallet is part of the estate they leave behind.

  • However, estate planning is crucial for any transfer of cryptocurrency to occur.

  • You’ll need to know the kinds of currency your loved one owned and where it is located, as well as the key (a 64-digit passcode) in order to access the funds.

  • If you don’t know the location and key for your loved one’s cryptocurrency wallet, those funds may be lost forever when they die.

  • If they kept any of their holdings with a third-party crypto exchange, however, you likely will be able to access their wallet by providing required documents.

Because of cryptocurrency’s rise in popularity in recent years, you may find the decentralized digital money—such as Bitcoin, Ethereum, Litecoin, and more—among a loved one’s assets after they die.

For those who don’t really understand the digital currency or exactly how it works, dealing with a loved one’s cryptocurrency wallet can be daunting, especially since crypto currency is easy to misplace or lose altogether if you don’t know where it is stored and you don’t have the password to access it.

But once it is located, cryptocurrency will be a part of the value of your loved one’s estate along with traditional bank accounts and other financial assets, and it must be assessed along with everything else. First, there are several things you’ll need to learn.

Communication is key

The most important step in recovering cryptocurrency happens before your loved one dies: disclosing the kinds of currency they own and where it is located.

In order to make sure this form of currency remains part of the estate, it should be included in one’s will, along with other assets, and the key should be listed among other important documents and passwords so the funds can be accessed.

With cryptocurrency, the risk of losing assets or misplacing them is higher than with traditional assets. Because cryptocurrencies are stored mostly on blockchain technology, a lost password or asset might be almost impossible to recover.

The only one way to access these digital funds: through a 64-digit passcode, also known as a key. Thus, if someone passes away and doesn’t let their family know they were investing and trading with cryptocurrency, there could be a lot to lose, depending on how much money was made.

The will should also include instructions as to how cryptocurrency funds will be distributed. If your loved one had a digital wallet in which they kept their cryptocurrency, then allowing you access to that wallet after their death will make things much easier.

At this time, cryptocurrency wallets do not allow any form of “payable-on-death” or “transfer on death” options, which are ways that traditional financial accounts can be transferred to beneficiaries immediately, without going through probate.

How crypto wallets work

Cryptocurrency is stored in two types of digital wallets: hot wallets or cold wallets. The hot wallet is similar to a checking account, as it’s used for trading and purchasing cryptocurrency. Cold wallets are for long-term storage, similar to a savings account.

Crypto wallets can either be stored and managed by a third-party cryptocurrency exchange, or they can be downloaded and stored on a physical device like a thumb drive.

You can access a crypto wallet by using the key, a 64-digit passcode. But what happens if you don’t have it, or it is lost?

This is where third-party crypto exchanges became part of the equation, to add extra protection. These exchanges have a copy of the key, and in many cases can act as a middleman, similar to a bank—and are trusted as such.

Getting access to a crypto portfolio

If you are the executor or the administrator of the estate, you will need to locate and assess all cryptocurrency funds so they can be distributed to your loved one’s beneficiaries.

If your loved one stored their cryptocurrency on a device in their home, the key is necessary to access those funds. The only funds you can access without a key are the ones your loved one has placed with a third-party exchange.

The two most commonly used cryptocurrency exchanges are Coinbase and Gemini—both of which have a process in place for helping families who have lost loved ones.

Most exchanges provide customer service after a cryptocurrency owner dies. The two most commonly used and highly reputable cryptocurrency exchanges are Coinbase and Gemini—both of which have a process in place for helping families who have lost loved ones who have cryptocurrency. For example, Coinbase has a step-by-step process that will lead you to a Coinbase analyst who will assist you as long as you have the right documents. Gemini, too, has a similar process to initiate a transfer from your loved one’s wallet, as long as you have the death certificate and power of attorney (or are the executor or administrator of the estate). In fact, all exchanges offer customer service during this difficult time, but the documents they require vary from exchange to exchange.

The biggest stumbling block you may face is simply knowing that your loved one owned cryptocurrency at all. If they shared their keys with no one, and didn’t make their family aware of their crypto investments, their funds may be lost forever.

But with some discussion and planning ahead of time, a crypto wallet can be distributed according to the instructions in your loved one’s will, along with their other assets ●