When You Die, What Happens to Your Bitcoin?

Without your private key, your heirs are locked out of your digital wallet. Being prepared, though, ensures they can gain access to your assets when the time comes.

The word Bitcoin, for the cryptocurrency, is spelled out in blocks on top of a smartphone.
(Image credit: Getty Images)

According to the Cremation Institute (opens in new tab), nearly 90% of cryptocurrency owners are worried about what will happen to their digital assets after they die. It turns out that they have good reason to worry.

Presently, there are over 12,000 different cryptocurrencies globally, making tracking them a challenge, especially if the owner becomes incapacitated or dies. The number of cryptocurrency investors is also growing, and according to Blockchain.com, there are now more than 83 million blockchain wallet users. That number is expected to grow, making it more likely than ever that you or a family member has digital currencies.

What Are Crypto Assets?

Cryptocurrency is a type of digital currency that uses cryptography for enhanced security. Along with Bitcoin (BTC), cryptocurrencies that you might have heard of include Ethereum (ETH), Litecoin (LTC), Cardano (ADA) and Dogecoin (DOGE), to name a few. 

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Cryptocurrencies had a rocky first half of 2022. Bitcoin is just barely keeping it head above $19,000, but investors do not think it’s price will be depressed for long. A recent study by Deutsche Bank found that about a quarter of bitcoin investors believe the cryptocurrency’s prices will be over $110,000 in five years. Of those interviewed, more than 70% said they planned to increase their crypto activity in the next twelve months.

Crypto Assets Provide Challenges When the Owner Dies

As the popularity and value of these assets grow, one of the areas struggling to keep up is the estate-planning field, as digital currencies and assets create unique challenges upon death. Instead of being treated as cash in a bank account, they are considered assets. However, because these assets exist only in virtual form and are encrypted, they can be nearly impossible for surviving heirs to find.

According to Marc Zimmerman, an experienced trust, estate and tax attorney at The Law Office of Michael A. Zimmerman, “Traditional methods of writing a will and expecting the named executor to find all the assets won’t work with Bitcoin and other digital currencies. While you're still alive, one of the largest advantages of a crypto wallet is that no one can get into it. This isn’t so great once you’re dead.”

Cryptocurrency is stored using a virtual wallet, and a private key is needed to open it. This private key is a string of random characters, essentially the password that gains access to the wallet contents. This is like a physical key to open a safe-deposit box. Of course, a bank can eventually access a safe-deposit box if the physical key is lost, but that is not true of a wallet with a missing virtual key. 

Zimmerman explains, "If you die without leaving anyone the details of your private key, your cryptocurrency will become nearly impossible for your loved ones to access." While numbers are not available readily for many cryptocurrencies, Bitcoin estimates that approximately 4 million Bitcoins have been lost due to the deaths of owners and missing private keys. That is more than $240 billion today.

Be considerate to those you will eventually leave behind by giving your heirs access to your crypto assets. Many experts advise that investors write down the private key in your documents. However, Zimmerman cautions that doing so isn’t always safe or viable. “Wills are public documents, and sharing private crypto keys in them is not ideal. Leaving a small piece of paper with the key presents additional risks. An unscrupulous family member who understands crypto could walk away with the private key without anyone else knowing crypto assets exist. A piece of paper can also get thrown out by a well-intentioned friend helping to clear away the contents of the home.”

Solutions

“One option is to move your crypto to an exchange,” suggests Certified Financial Planner Avani Ramnani, lead adviser at Francis Financial (opens in new tab). Exchanges and custodians like Coinbase offer a more traditional alternative, providing a vault that is essentially a physical safe-deposit box for your private crypto key.

In addition, Coinbase offers joint accounts, allowing a smoother transfer of inherited crypto assets to inheritors. If the custodian does not offer joint accounts, establish a beneficiary with the exchange holding your crypto investments. Ramnani cautions investors to “review your custodian’s service policies to understand how they plan to handle postmortem account management, ensuring that your loved ones inherit your asset easily.”

A trust account is an option, too. Zimmerman is working with a client to create such an account that owns the crypto. Zimmerman explains, “A trust account is beneficial because it avoids the probate process with possible easier transfer to heirs. The only issues around a trust owning crypto is that the estate attorney needs to make sure to put language in the documents to allow the trustee to purchase and sell ‘risky’ investments such as crypto.”

Other Digital Assets

Cryptocurrency may be an extreme example, but Ramnani recommends providing instructions and access to your entire digital life to your beneficiaries. “Include information on how to access online bank accounts, frequent-flier miles and other rewards points, PayPal, Venmo, Google Wallet, Apple Wallet, as well as prepaid cards such as from Starbucks or Uber.

Each of these accounts can have significant amounts of money in them, and it is important to make sure these dollars pass to your family.” Password managers such as Keeper (opens in new tab), LastPass (opens in new tab) or Dashlane (opens in new tab) allow you to create strong passwords and share with family members, when appropriate.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC (opens in new tab) or with FINRA (opens in new tab).

Stacy Francis, CFP®, CDFA®, CES™
President & CEO, Francis Financial Inc.

Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc. (opens in new tab), which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a nonprofit that has provided free personal finance education and resources to over 15,000 women.