Cryptocurrency in Estate Planning

With the rapid advance in technology and the availability of digital assets, attorneys need to weigh speculative considerations in order to protect their clients. Money is a driving force in client decisions. With the use of money veering away from physical cash to credit, a number of clients may be comfortable considering investments in digital currency. Digital currency, commonly referred to as “cryptocurrency,” hit the scene in 2009 when an anonymous entity using the alias of Satoshi Nakamoto published a white paper describing a digital currency not tied to any centralized system called Bitcoin.[1] Bitcoin gave rise to a plethora of cryptocurrencies, including Ethereum, Monero, etc.

Clients use fiat money to purchase cryptocurrency on exchanges, such as Coinbase. Once acquired, a client will store their cryptocurrency in a digital wallet. In order to access and use cryptocurrencies, clients use two keys: a private key and a public key. A private key is similar to a password and the public key is used to make a public record when the cryptocurrency is used.[2] The use of these keys is considered a single-signature transaction. Cryptocurrencies afford clients a level of privacy and control. Its decentralized nature makes cryptocurrency amiable, especially in countries with rampant inflation or financial difficulties. However, this lack of centralization creates difficulties in preserving the digital asset.[3]

Clients who choose to own cryptocurrency may fail to consider what happens to their digital assets upon their death. A client can only use cryptocurrency through the use of both a public and private key. Unlike a bank account or other password protected assets, no centralized system overrides the lack of password to turn over any assets to the executor or beneficiary. If a client currently owns cryptocurrency and fails to account for it in estate planning or chooses not to provide the private key to another risks the asset being lost entirely upon incapacitation or death.

I propose that attorneys facilitate the transfer of cryptocurrency assets in estate planning with a multi-signature algorithm that creates two private keys. Instead of the classic single-signature transaction of using one private key and one public key, the cryptocurrency requires two private keys in order to be accessed and used. Consider the following example:

Client informs Attorney of cryptocurrency and designates Beneficiary in Client’s will or trust. Client then creates or provides two private keys through a multi-signature algorithm. Client gives Attorney one private key to securely store and the second private key to the beneficiary. Client continues to use the cryptocurrency. Upon Client’s death, Attorney transfers the first private key to the beneficiary to complete the transfer. Beneficiary can then access the cryptocurrency. Obviously, this proposal can be expanded to multiple beneficiaries, but it is imperative that the attorney understand the fiduciary duty involved.

For further discussion on cryptocurrencies in estate planning, see: Aubry K. Noonan, Comment: Bitcoin or Bust: Can One Really “Trust” One’s Digital Assets?, 7 Tex Tech Est Plan Com Prop LJ 583 (2015).

For additional considerations regarding digital assets in estate planning, see: Michael Kearney and Joseph Doll, Unique Considerations in Cryptocurrency Estate Planning, 2018 Law360 159-9 (June 8, 2018).

[1] Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, Bitcoin (2008), https://bitcoin.org/bitcoin.pdf

[2] Aubry K. Noonan, Comment: Bitcoin or Bust: Can One Really “Trust” One’s Digital Assets?, 7 Tex Tech. Est. Plan. Com. Prop. L.J. 583, 591 (2015).

[3] Property, Money and Tax, 4A Narrative, Chapter 6 Financial remedy proceedings: special considerations, B Specialised assets, 2018 Law360 1822-1825 (June 19, 2018).