Over the past year, it seems as though most conversations about finance have quickly turned to the topic of cryptocurrencies. The volatility, mystery, uniqueness and potential of the underlying technology makes cryptocurrencies a fascinating dinner topic.
Arguments and excitement around currency are not new in American history. In the late nineteenth century, the American economy was quickly transforming from an agrarian to an industrial economy. The central economic issue following the conclusion of the Civil War concerned what type of monetary standard the country should adopt and how it should be regulated.
For three decades the political agenda of the day was focused through the lens of the money debate, with Northeastern lenders pitted against agrarian debtors. “Goldbugs,” “Silverites,” and “Greenbacks” would argue in passionate apocalyptic terms as Congress designed and implemented regulations to help prevent a run on gold and diminish the negative effects of inflation.
The consequential presidential election of 1896 featured Democratic candidate William Jennings Bryan arguing that silver should back the nation’s money supply rather than gold. At the Democratic Convention, Bryan delivered his infamous “Cross of Gold” speech, in which he thundered, “The most enlightened of all the nations on the earth has never declared for a gold standard!”
If he were alive today, William Jennings Bryan might ask if the investors of an enlightened nation like the United States would ever declare for decentralized digital money that is designed to be used over the Internet anonymously. As the American economy continues to become more digital, investors have evolved from arguing over gold and silver to using apps on a cellphone to purchase cryptocurrencies like Bitcoin and Ethereum.
Over the past few years, cryptocurrencies have dominated headlines as nations around the world look to understand and regulate the cryptocurrency market. Most recently, El Salvador officially became the first world economy to make Bitcoin legal tender and is now even mining Bitcoin using power harnessed from a volcano. Conversely, China has “banned financial institutions and payment companies from providing crypto-related services.”
Here in the United States, the proliferation of trading cryptocurrency has only increased. A July 2021 survey by NORC at the University of Chicago discovered that “13 percent of Americans bought or traded cryptocurrency in the past 12 months... By comparison 24% of Americans invested in stocks over the same time period.” Similar to the government’s response in the 19th century, both the Biden administration and SEC Chair Gary Gensler recently hinted that cryptocurrency needs increased scrutiny and regulation.
Clearly there are more questions than answers when it comes to the future of cryptocurrencies. But here are five things you should know about cryptocurrency that relate to your estate plan:
1 – What is cryptocurrency?
Let’s keep it simple when it comes defining cryptocurrency. Baird’s Michael Antonelli defines cryptocurrency as “a way to send money to people on a decentralized network,” and defines blockchain as “a virtual ledger of accounts and transactions that is stored on a network private participants.” Like silver and gold, cryptocurrency has value because we as a society believe that it does.
2 - Methods of Ownership: Cryptocurrency Exchange vs. Digital Wallet and Private Keys
There are two main ways to own cryptocurrency: on an exchange and in a digital wallet with private keys for access and transactions. Currently, the most popular exchanges do not support any form of beneficiary designation. Making matters even more complicated, those same exchanges restrict account ownership to individuals, preventing trusts or LLCs from owning the account. Consequently, if you own cryptocurrency on an exchange, you will need to make sure the account is part of your overall estate plan.
If you own cryptocurrency in a private wallet and do not share how to access it with your heirs or fiduciaries before you pass away, it will probably be gone forever. This is the modern equivalent of burying treasure and losing the map.
Think of your digital wallet and private keys as good old-fashioned cash. If you hid your cash and never told anyone where you hid it, your heirs could not retrieve it. If you locked your cash in an indestructible safe and lost the keys, the cash would be locked away forever. The same concepts apply with the digital wallet. Unlike a large pile of cash, the problem for cryptocurrency owners is they could potentially have millions of dollars in cryptocurrency on a device as small as a USB drive.
3 – Include your cryptocurrency in your estate plan strategy
If you do not mention the cryptocurrency in your will and it is not owned in a trust, it will fall into the residue of your estate, which is a catch-all for your property. The problem is the anonymous nature of cryptocurrency could prevent your heirs from ever knowing it existed. As a result, they would never find the cryptocurrency.
Making matters even more complicated, a recent article in Barron’s noted that “popular cryptocurrency exchanges like Coinbase and Bitstamp do not ask account holders to name a beneficiary.” If you do not name the account in your will, the fate of the cryptocurrency will be determined by the probate court.
Remember, there is no personally identifiable information associated with your cryptocurrency. Take time to document what you own, where you bought it, and specific instructions on how it can be accessed. Write down all the information regarding the private digital key that is required to access it. But how do you do that without jeopardizing your privacy, and risking allowing hackers to steal the cryptocurrency from you and your heirs?
4 – Keep your cryptocurrency private during the probate process
Your private keys cannot be exposed, or you will be at risk of having your cryptocurrency stolen. As discussed above, due to the anonymous nature of cryptocurrency and the lack of centralized government oversight, there are no protections for owners of cryptocurrency. If your cryptocurrency is stolen, you are not getting it back.
Because the probate process is public, it is a horrible idea to write down the private key information in your will. The network at your attorney’s office may also be susceptible to hackers, and if someone gains access to it, your private keys may be exposed.
One idea is to create a memorandum to your will where you list sensitive information. The memorandum is a separate document that is referenced in your will, but usually is not part of the public record. Because it’s a separate document, you can update it if access codes are changed without going through the time-consuming and costly formalities of updating a will.
5 – Use a trust to pass cryptocurrency to your heirs
Putting your cryptocurrency in a trust can help not just with privacy but with making sure it is discovered and passed to your heirs after your death. Trust documents are not part of the public record associated with the probate process, which adds an extra layer of privacy for your exchange account or digital wallet. With a revocable living trust, you can maintain a certain level of privacy while simultaneously providing your successor trustee with instructions on how to access and distribute your cryptocurrency.
The trust also helps if your heirs are young children or not technically savvy. You will have control of how the trust is set up and can allow a successor trustee to manage the cryptocurrency on behalf of your heirs. This may help alleviate the potential headaches for an heir who inherits cryptocurrency but doesn’t understand what it is or how to sell it.
America may have left the “Goldbugs” and “Silverites” to the archives of history, but the future of cryptocurrency is completely unknown. If you own a form of cryptocurrency, make sure it is addressed in your estate plan strategy. Remember to consider the needs of your heirs when it comes to the location and accessibility of your cryptocurrency. Prioritize privacy and security when determining how to provide access codes to your heirs. And most importantly, work closely with your estate planning attorney and financial advisor to ensure that your cryptocurrency is safely and securely passed to on to your heirs.
 William J. Bryan, The First Battle: A Story of the Campaign of 1896 (Chicago: 1897), pp. 199-206.JG2021-1026