Just a few years ago, Bitcoin and other cryptocurrencies rarely came up in estate planning conversations. Most of my clients didn’t own them, and many weren’t quite sure what they were.
That’s beginning to change.
While cryptocurrency still isn’t something I see in most of my clients’ estates, it’s becoming more common. And as more people invest in it, there’s an important estate planning question that often gets overlooked.
What happens to your cryptocurrency when you die?
With a traditional bank or investment account, there’s usually a way for your family to find the money and claim it.
With cryptocurrency, it’s not always that simple.
In fact, you could leave your family a small fortune that they may never be able to collect.
Why This Matters
First, What Exactly Is Cryptocurrency?
Cryptocurrency is a form of digital money. Bitcoin is the best-known example, but there are thousands of others.
Unlike money in a traditional bank account, cryptocurrency exists electronically. It can be held through an online investment platform or in something called a digital wallet.
A digital wallet is a way to store and access cryptocurrency. Some wallets require special passwords or secret recovery codes, often called private keys or recovery phrases.
Here’s the important part.
If your family doesn’t have the information needed to access your cryptocurrency, that money could be lost forever.
And unlike a bank account, there may be no customer service department that can help them recover it.
The Million-Dollar Password Problem
Consider what happened to a man in Wales named James Howells.
Back in 2013, he accidentally threw away a computer hard drive containing the information needed to access 8,000 Bitcoin.
At today’s prices, that Bitcoin would be worth hundreds of millions of dollars.
Unfortunately, the hard drive ended up in a landfill.
Imagine knowing you have a fortune buried somewhere under tons of garbage, but having no practical way to get it back.
Now imagine something similar happening to your family.
You carefully save and invest throughout your life. You even have a good estate plan.
But nobody knows you own Bitcoin. Or perhaps they know about it but have no idea how to access it.
Your investment could be worth thousands of dollars, yet be completely out of reach.
Your Estate Plan Can’t Transfer What Nobody Can Find
One of the most important parts of estate planning is making sure the right people receive what you leave behind.
That includes more than just deciding who gets your money.
Someone also needs to know what you own, where it’s located, and how to access it.
With traditional investments, we have systems in place to help.
Banks maintain records. Investment companies send statements. Accounts may have named beneficiaries.
Cryptocurrency can be different.
If your Bitcoin is held through a major investment platform, there may be a process for your trustee or personal representative to claim it after your death.
But if it’s held in a private digital wallet, your family may need a special recovery phrase or private key to access it.
And even a court order may not solve the problem if that information is missing.
The solution isn’t complicated, but it does require some planning.
A Few Simple Steps Can Protect Your Digital Investments
If you own cryptocurrency, here are some things worth considering:
- Make sure someone knows it exists. Your family or successor trustee should know that you own cryptocurrency and where it is held.
- Create a secure way to access it. Depending on how your cryptocurrency is stored, your trustee may need special instructions, recovery information, or assistance from the investment platform.
- Don’t put passwords or private keys in your will. A will generally becomes part of the public court record during probate. You don’t want your private financial information available to everyone.
- Make sure your estate plan covers digital assets. Your trustee or personal representative should have the proper authority to handle digital accounts and cryptocurrency under Michigan law.
- Review your plan as things change. If you buy, sell, or move cryptocurrency to a different platform or wallet, your access instructions may need updating.
One important caution: Never share your private keys or recovery phrases casually. Anyone who obtains them may be able to take your cryptocurrency. The goal is to provide secure access when needed, not make your investments easier to steal.
Simple Lesson
An inheritance isn’t much of a gift if your family can’t find it or access it.
This is true whether we’re talking about a bank account, a forgotten life insurance policy, or Bitcoin.
Good estate planning isn’t just about deciding who gets what. It’s about making sure your plan actually works when your family needs it.
And as the things we own change, our estate planning needs to change with them.
Action Step
The next time you review your estate plan, think about your digital assets.
Do you own Bitcoin or another cryptocurrency? Do you have online investment accounts your family may not know about?
And perhaps most importantly, would the person handling your affairs know where to start?
You don’t need to be a technology expert to plan for these things.
You just need to make sure your digital investments don’t become a mystery your family has to solve.
Even if cryptocurrency isn’t part of your life today, it may be part of your children’s or grandchildren’s financial future.
And it’s one more reason why a good estate plan needs to keep up with the changing world.
If you’d like help reviewing your plan, call (517) 548-7400 or connect with us here: https://www.michiganestateplans.com/contact-us
