The biggest mistakes crypto investors make with estate planning can be costly and often overlooked. According to the National Association of Unclaimed Property Administrators, around 1 in 7 people leave unclaimed property behind. While the recent surge in bitcoin and ether prices is grabbing headlines, this estate planning issue is a long-term concern that will only intensify as more people adopt and own cryptocurrency. Many investors neglect to account for cryptocurrency in their estate plans or inform their heirs about accessing their crypto holdings. With an estimated 14-17% of U.S. adults owning cryptocurrency, losing access to these funds is a growing worry. Azriel Baer, a partner at Farrell Fritz, warns that as more assets are placed in cryptocurrency, a significant portion of inherited assets risks being forfeited. However, crypto ETFs are emerging as a solution, allowing investors to access the crypto market without direct ownership, reducing the risk of loss. Despite this, estate planning mistakes among crypto owners are common and can be avoided. Firstly, wills often fail to include language regarding digital assets, which can lead to legal complications. Only 24% of Americans have a will that specifies how their money and estate should be managed after death, and many haven't updated their wills in years. This can be problematic, as an old will may not reflect current wishes, and crypto-specific language is often absent. Patrick D. Owens, a shareholder at Buchalter, emphasizes the importance of updating estate planning documents regularly. Without clear language, heirs might face legal hurdles in accessing crypto assets, which can be costly and time-consuming. Secondly, even with a will, crypto assets can get stuck in probate. Baer recommends transferring crypto to a revocable living trust to ensure immediate access for the trustee upon the owner's death. This avoids the lengthy probate process, which can delay asset access for heirs. A pour-over will is typically used in conjunction with a revocable trust to transfer any assets not included in the trust at the time of death. Thirdly, not sharing basic crypto information can result in significant losses. Private keys, which act as digital passwords to access cryptocurrency funds, must be kept secure and accessible to the right people. Baer advises keeping these keys in a safe place, such as a safe box or with a lawyer or crypto inheritance service, rather than including them in a will, which becomes public during probate. Lastly, many designated fiduciaries may not be equipped to handle crypto assets. The volatility of crypto and the complexity of transactions can lead to financial losses if the chosen fiduciary is not familiar with the asset class. Baer highlights the example of an institutional trustee who refused to manage a client's crypto, leading to a costly and time-consuming search for a suitable replacement. Additionally, failure to plan for crypto estate taxes can have detrimental effects on families. With the rapid growth of cryptocurrency values, many investors hold large crypto holdings that may be subject to significant taxes. Jonathan Forster, a shareholder at Weinstock Manion, emphasizes the importance of considering the impact of crypto ownership on estate taxes while alive. Proper planning can help minimize tax burdens and ensure the efficient distribution of assets to beneficiaries.
