What Happens to Your Crypto When You Die?
Estate planning has long provided mechanisms for passing on bank accounts and retirement accounts such as IRAs and 401(k)s.
In most cases, the owner designates a beneficiary, which provides for a smooth transfer of assets after the owner’s death.
But what about newer digital assets, like money in your Robinhood portfolio? Or the balance of your account in PayPal? And what about your cryptocurrency — which may be protected by a private key only you have access to?
What Happens to My Crypto When I Die?
Crypto is no longer an obscure novelty. More Americans than ever before are buying digital currency.
But without a solid plan in place, your loved ones may never see those coins after you die.
There are two main ways to own cryptocurrency — and how it’s stored makes a difference in estate planning.
Two Ways to Own Crypto
- A crypto exchange: Casual crypto investors mostly use large exchanges, such as Binance and Coinbase. The user experience is similar to a brokerage firm (i.e. they have a customer support team).
- Crypto wallets with private keys: Hardcore crypto users prefer to hold digital currency in their own wallets. It’s considered the safest and most private way to store crypto.
If you hold crypto on a platform like Coinbase or Gemini, your heirs will have to go through probate — a lengthy (and often costly) legal process — to get the money out.
The same applies to crypto held on apps like Robinhood and PayPal.
Coinbase, Binance, Kraken and other exchanges don’t offer trust accounts either, so you can’t avoid probate that way.
If you have a will, your family can take it to probate court and get special documents called letters testamentary, and provide those to the exchange, like they would any other account without a beneficiary designation.
Coinbase provides a step-by-step guide on how to contact them after an account holder dies, along with a list of required documentation.
Digital Wallets and Private Keys
Seasoned crypto investors tend to hold their assets in a digital wallet, which is assigned a blockchain address that lets users send and receive digital coins. The actual crypto remains in a ledger on the blockchain.
To inherit crypto stored in a digital wallet, a loved one must know:
- The asset exists.
- Where to find it.
- How to access it via private key.
That means your trusted person must know the exact sequence of alphanumeric characters that make up your wallet key.
“If they don’t, all that money could be lost to the ether,” said certified financial planner Carolyn McClanahan, director of financial planning at Life Planning Partners.
To ensure that doesn’t happen to your crypto holdings, create a list of each crypto website, along with login information, passwords, digital keys and any two-step authentications you’ve enabled.
Store the information in the right place. There are too many high-profile stories of people losing crypto fortunes by misplacing their wallet keys.
If your intended beneficiary isn’t familiar with cryptocurrency, it’s wise to include step-by-step instructions on how to access it and cash it out. Your fortune of obscure crypto coins will be worthless if your loved ones don’t know how to transfer money out of a wallet and sell it on an exchange.
Most importantly, make sure the right person knows how to access your information when the time comes.
Still, be extremely careful with your crypto wallet. Because crypto isn’t tied to your name, your digital key is all someone needs to access your coins, move them and claim the money as their own.
Worried about sharing your private key with others? This blog post by estate planning attorney Anthony Park offers alternative ways to share this sensitive information.
On the other hand, if private keys are locked behind an uncrackable encrypted and password-protected hardware wallet, your heirs will get painstakingly close to your Bitcoin fortune — but not close enough.
Can I Name a Beneficiary to My Investment App Accounts?
Not all investment accounts let you pick a beneficiary. Robinhood is a prime example.
You can’t designate beneficiaries or open a joint account on this online-only investment platform.
That leaves your family with one option — and it isn’t pretty.
“Any Robinhood account you have will end up going through probate,”McClanahan told The Penny Hoarder.
Probate is a dreaded word in the estate planning industry for a reason. It costs money and the whole ordeal may not even seem worth it depending on your account balance.
“If it’s a small amount of money, it’s basically gone because the cost of doing probate is worth more than the account,” McClanahan said.
On its website, Robinhood says it’s in the process of adding beneficiary designations in the future.
In the meantime, you might want to consider opening an account elsewhere if your investments are worth $5,000 or more.
“A lot of young people use Robinhood who don’t realize the hassle it’s going to cause their family,” McClanahan said. “It’s going to be a pain to get that money back.”
Trying to close a loved one’s account? Here are the step-by-step instructions from Robinhood.
You might be wondering: Can my relative just login to my Robinhood, sell my shares and transfer the money to their own account?
It may be tempting but it’s not advisable.
“That’s totally not legal,” McClanahan said. “It’s easy for people to do though, and it probably happens more than we know.”
With Other Apps and Platforms, the Rules Vary
Here’s how a few other popular investment apps handle beneficiary designations.
- Acorns: You’ll need to download a form, fill it out, upload it to Acorns and then email them, according to the company’s website. It’s a bit complicated to add more than one beneficiary to your account.
- Stash: You can designate a beneficiary for both your Stash taxable investment and retirement accounts using this form. You have to get it notarized and email it to [email protected].
- SoFi: You can add beneficiaries to any IRA account quickly online by accessing your account settings. But for non-IRA SoFi investment accounts, you need to request a special Transfer on Death form by calling 855-525-7634 or chatting online with customer service.
- E-Trade: You can quickly and easily add beneficiaries to both your investment and retirement accounts. Here’s a step-by-step guide on how to do it.
What About Money Transfer Apps Like PayPal, Cash App and Venmo?
Average account balances on apps like PayPal and Venmo may not be worth the time and effort it takes to claim them in probate court.
Neither PayPal nor its child company Venmo lets users assign a beneficiary to their account.
However, if you have a PayPal Business account, you can add other users. You can create multiple logins and assign specific privileges to each user.
This can be really helpful if you’re running a small business (like an Etsy shop) or online side hustle that might still generate revenue (or have unfulfilled orders) after you’re gone.
Finally, Cash App lets you assign a beneficiary to your investment account. However, you can’t assign one to your general Cash App account.
To add a beneficiary to your Cash App investment account, you need to contact customer service.
Designate a Digital Executor in Your Will
An executor is the person who takes on the legal responsibility of paying your final debts and making sure what’s left over is transferred to your beneficiaries. A digital executor specifically handles your digital assets.
Be selective about whom you trust with this sensitive task, and communicate what’s expected of them.
It’s important that your will gives them explicit permission to log in using your passwords and act on your behalf.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.