{"id":26474,"date":"2022-09-13T08:00:53","date_gmt":"2022-09-13T13:00:53","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=26474"},"modified":"2022-11-04T09:50:28","modified_gmt":"2022-11-04T14:50:28","slug":"key-considerations-in-recordkeeping-for-crypto-estate-planning","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/practice-management\/key-considerations-in-recordkeeping-for-crypto-estate-planning\/","title":{"rendered":"3 key considerations in recordkeeping for crypto estate planning"},"content":{"rendered":"

As cryptocurrency<\/a> becomes mainstream, it\u2019s becoming more common to see digital assets included in our clients\u2019 estate planning, sometimes in sums that are far from trivial. While many of the best practices for crypto estate planning are the same as those for general estate planning, there are several idiosyncrasies that require additional attention during the estate planning process.<\/p>\n

Many of these concern the pseudonymous and decentralized nature of blockchain technology. Investors don\u2019t need to provide their names or contact information when making crypto trades; typically, all you need is a wallet address. This means that if someone who holds crypto dies without leaving records of their assets, the wallets and their linked funds may never be discovered.<\/p>\n

What\u2019s more, even if the existence of a wallet is known, without the proper credentials, such as a password, private key, or seed phrase<\/a> (more on that below), crypto assets are impossible to access. There are some real horror stories about people losing their seed phrase, and thus, losing access to a crypto fortune.<\/p>\n

One of the most important elements of crypto estate planning is leaving a detailed record of crypto holdings: where and when they’re purchased, where they\u2019re stored, and how to access them. Read on for three questions that are vital to ask clients who are preparing their crypto estate plans.<\/p>\n

1. Where is your crypto wallet information recorded? <\/span><\/h2>\n

Cryptocurrency and non-fungible tokens<\/a> (NFTs) live on the blockchain at a certain address similar to a URL, but the addresses and credentials that prove a user\u2019s ownership and allow access to digital assets are stored in a wallet. These credentials are called private keys, and are long, random digital codes. The longer and more random they are, the more secure they are; most are 256 digits long.  <\/span><\/p>\n

Crypto wallets come in two categories:<\/p>\n

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  1. <\/b>Hot wallets (online wallets): <\/b>Hot wallets are connected to the internet. This makes them easy to use for transactions, but also leaves them vulnerable to exploit. Examples of hot wallets include MetaMask, Coinbase Wallet, and Edge Wallet. <\/span><\/li>\n
  2. <\/b>Cold wallets (offline wallets): <\/b>Cold wallets are not connected to the internet. They can be as simple as a paper wallet, which is just a written record of private keys. However, a more secure cold wallet is a hardware wallet, which stores private keys digitally, but offline, much like a USB. Popular hardware wallets include Trezor and Ledger. <\/span><\/li>\n<\/ol>\n

    In case someone loses access to their digital wallet, they also create a seed phrase, typically a series of 12, 18, or 24 random words that allow you to recover your wallet, even if you lose the physical device the information is stored on.<\/p>\n

    In order for succession to proceed smoothly after a client\u2019s death, the successor or executor must be able to access all of the decedent’s crypto wallets. Part of the estate planning process should be recording the location, passwords, and seed phrases of digital wallets, and storing those records in a secure place. <\/span><\/p>\n

    For example, your client may want to keep these records in a fireproof safe or bank safe deposit box. Some people have gone to even greater lengths to ensure this information isn\u2019t destroyed. For example, I\u2019ve worked with someone who had their seed phrases engraved on metal plates. Other security measures to consider include Shamir\u2019s Secret Sharing<\/a> or multisig wallets similar to those offered by Casa or Unchained Capital.  <\/span><\/p>\n

    It\u2019s important for clients to regularly update these records to make sure that any new addresses or wallets are included in their will or trust. Make sure your client includes the following information:<\/p>\n