Bitcoin, Ether: What happens to your crypto if you die?

Crypto accounts are not like traditional investment accounts. They may be more vulnerable to security concerns, and a beneficiary cannot usually be named. For example, if you store your crypto on a physical device at home and some friends know your key, a kind of password that grants access to a crypto wallet, one of those so-called friends could break into your house and steal your crypto. as easily as they could walk away with their great-grandmother's diamond earrings. Or, if you didn't share the keys with anyone, your crypto will be lost forever.

It is important to understand how to safely store your crypto and communicate your wishes to your loved ones, just as you would any other valuable asset.

KNOW HOW YOUR CRYPTO IS STORED

You trade and store cryptocurrencies in wallets, but not the leather type. Crypto wallets can be digital and managed on an app or website, or physical like a USB stick. The type you choose depends on what you intend to do with your crypto.

- HOT WALLETS: they are used to trade and buy cryptocurrencies. The advantage is that they are generally free and convenient, but the disadvantage is that they are less secure because they are always connected to the Internet.

- COLD WALLETS: used to store crypto for a longer period of time. Think of it like putting your crypto in a freezer.

The hot wallet is like a checking account, with money flowing in and out, while the cold wallet is more like a savings account, where money sits longer. You can have both at the same time.

Whoever has the keys, that is, whoever maintains custody of a password of randomly generated numbers and letters, has access to its cryptography. It could be you, a third-party crypto exchange, or a hybrid of both.

"Don't save more than you're willing to lose in a third-party exchange as a long-term solution," says Alex Mejias, founder and managing attorney of James River Law in Richmond, Virginia. the keys. They could freeze your funds or be attacked. ”Mejias recommends a self-custody or hybrid option as the value of your crypto increases.

KEEP YOUR CRYPTO SECURE, BUT ACCESSIBLE

A cold wallet can be a small physical storage device that is easy to lose. Your cold wallet requires a PIN code to access, plus you set up a recovery phrase as a backup in case you lose your key. According to Mejías, a fireproof safe at home or a safe in a bank is essential, but do not keep your cold wallet in the same place as the note that contains your password, PIN and recovery phrase. If someone finds all of those items together, it's goodbye Bitcoin.

Above all, design a storage method that makes sense. "Don't get so cute that you create a complicated system that you can't remember," Mejías says. You have heard of people writing down their keys and cutting the paper into three pieces, hiding each piece in a separate place. It sounds like a good idea, but it is a horrible idea. If you lose one of those three, it will be gone forever. You have tripled your risk. "

MAKE A DETAILED PLAN FOR THE BELOVED

Name a beneficiary in your will and add a document to your estate plan that lists their crypto assets and the passwords, PINs, keys, and instructions for finding your cold wallet. If you have an account on a cryptocurrency exchange, your beneficiary can contact customer service to notify them of your death.

According to a Coinbase representative, there is a process to guide closest family members, including one-on-one assistance from a Coinbase analyst. Gemini requires a death certificate and power of attorney to initiate a transfer from a deceased person's account.

"We hope to simplify this process in the future, so we are working to add account beneficiary functionality to our platform," a Gemini representative said in an email.

UPDATE YOUR PLAN AND YOUR PORTFOLIO

Make sure your assets go to the right people by keeping your estate plan up to date, especially after a life change like marriage or divorce. Provide updated instructions for beneficiaries to access your assets. Cold wallets also need maintenance, in the form of regular firmware updates. This can help ease the burden on your loved ones and hopefully avoid fights as they work out your estate after your death.

"Cryptocurrencies have the potential to be something very explosive because the value can be so great so fast," says Mejias. "When you think five, ten years from now, we are potentially talking about a lot of money."

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities, or cryptocurrencies.

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