ith Bitcoin and other crypto assets emerging as a popular new digital asset class, here at Cook Wealth, we have a few cautions and concerns for our crypto-owning clients. We know it can be uncomfortable to consider the implications of estate planning, especially if you’re a Millennial or Gen Z crypto investor, but if you take our advice and follow these simple suggestions, your heirs will be thanking you for years to come.

With its great anonymity comes great risk

At a high level, Bitcoin (the largest and most prominent cryptocurrency) is a bearer asset. This means there is no central depository, no easy recovery mechanism, and no customer service line to call when you have an issue, lose your password, or misplace your hard drive.

This high-level of security and anonymity is part of what makes Bitcoin and other cryptocurrencies unique and valuable. With no central third-party owner, digital assets are transferred user-to-user. If an investor loses their wallet, there’s no help line to call.

Owners of crypto have a private key, basically a long password, and a seed phrase, which is like a password recovery phrase. These codes allow crypto owners to access the value of their coins. Owners also have public keys and a public address. These can be shown to a buyer when requesting payment into your account, but they prevent people from accessing the balance inside. Like a CashApp or Venmo username.

In a recent survey, 39% of crypto investors answered that they had no plan in place to ensure their heirs will have access to their crypto when they die. In some cases, their family members don’t have access to their private key and seed phrase. In others, their family may not even know they owned crypto, or what kinds of digital assets they held in their wallet. To make matters even more difficult, this information can be stored digitally in a password-protected folder or app, adding further layers of security – and complication – in the event of death.

Without a detailed recovery protocol, owners who pass away without clear dissemination of their passwords or which cryptocurrencies they hold can have their heirs locked out forever.

Crypto loss is too common to ignore

Unfortunately, crypto loss is surprisingly prevalent.

It is estimated that 3.7 million Bitcoin, currently valued at $185 billion, have been lost forever. Yes, Billion with a B. Many of these 3.7 million lost coins come from early in the Bitcoin project when coins were worth only fractions of a penny. Some owners forgot about them, threw them away, and disregarded them when upgrading computers. But more recently, even as investors are much more aware of the value, lost coins still occur. But lately, these coins aren’t lost through a blatant disregard for property, but through a lack of estate planning.

A majority of crypto owners are Millennial and Gen Z male investors. Many of these young investors never consider their own death and don’t take any steps to plan for it. This has led to some large-scale crypto losses. Thousands of these lost wallets now hold millions of dollars of crypto assets with little hope of the owner’s heirs ever recovering the value of what lies inside.

Safe and simple ways to give your heirs access to your crypto wallet

There are many solutions that have popped up in the marketplace, with businesses citing themselves as crypto inheritance platforms seeking to solve this problem. There are even solutions that will email your crypto key passwords to a loved one if you don’t log in for a certain amount of time. This automatic switch ensures that passwords aren’t locked away from loved ones forever. 

On a more mainstream level, many major banks and companies, such as PayPal and CashApp, are now in the process of allowing clients to hold their crypto directly in the app platform without ever taking possession of the associated private passwords and seed phrases. This goes a long way in solving the estate transfer problem by introducing a central partner who can keep and disseminate the coins alongside other assets under estate probate laws.

Investment platforms are rushing to embrace investors’ appetite for crypto. Currently, there are 14+ applications with the US government to form liquid ETFs which track the price of Bitcoin and trade it securely, just like they do with stocks, throughout the business day. Through these vehicles, coins are held by the investment custodian and transferred alongside other stocks, bonds, and mutual funds at death.

Cook’s take on estate planning for crypto investors

The landscape of regulation is gaining clarity and the number of places to hold Bitcoin and other crypto assets continues to rise. Here at Cook Wealth, we want to help investors as they consider what platform may be best for their unique concerns. We also recommend that clients consult with their estate attorney to ensure that any crypto assets are securely held and directly planned for in the estate. When you make a detailed crypto transfer plan with your estate attorney, they can help ensure that the necessary steps have been taken so your crypto wealth doesn’t get lost and locked away forever.