What happens to your cryptocurrencies and NFTs if you die? If you don’t plan, you’ll never get it back.

Although death isn’t a pleasant subject to discuss, it’s not possible to plan for every scenario ahead of time, particularly inheritance planning, also known as Estate planning. 

This means, that even after your death you have to transfer your physical, financial, and digital assets to your loved one. think of it as your will.

Whether it’s gold, cash, or property, someone usually inherits it once the dead leave it in a will. But what happens to a person’s crypto-assets when he or she dies? The solution isn’t that straightforward. The danger of losing or misplacing cryptocurrency is greater than conventional assets. 

We explain what happens to your crypto and non-fungible tokens (NFTs) after you die in this week’s column and how to set up your digital wallets so that your loved ones may access them safely.

Without keys, there are no cryptocurrency assets.

As a consequence of individuals dying and not providing their private keys, almost 4 million Bitcoins have gone out of circulation for life. A private key functions similarly to a password. It’s a combination of letters and digits that allows you access to your crypto wallet, protecting your cryptocurrencies and NFTs.

Due to the owners dying and their family members or close relatives being unable to reclaim the crypto assets from their wallets, billions of dollars worth of cryptocurrencies vanishes permanently.

Matthew Mellon, a Ripple investor with $1 billion in XRP, died in 2018 and his owned digital assets vanished. Gerald Cotton, the CEO of QuadrigaCX, a Canadian exchange, died in 2019, and he was the only person with access to $190 million in Aetherium. 

The bottom conclusion is that only the dead had access to the cryptocurrencies in each of these incidents. Cryptocurrencies are held in crypto wallets based on blockchain technology, which encrypts digital assets and makes it hard for other parties to access your private keys.

You can’t claim ownership of any crypto assets until you have the private keys. If you don’t have private keys, court orders or other legal documents will be useless.

Estate planning using cryptocurrency

Before we get into the specifics of safeguarding your crypto assets, it’s critical to think about to who you’ll provide access to them.

Remember that picking the correct person to grant access to your crypto wallet is more than just a matter of trust; it’s also a matter of selecting someone who is technologically aware and knows how to recover a crypto wallet.

Remember that picking the correct person to grant access to your crypto wallet is more than just a matter of trust; it’s also a matter of selecting someone who is technologically aware and knows how to recover a crypto wallet.

Let’s imagine Alex has two Bitcoins that he wants to leave to his brother James if he passes away. On the other hand, James is clueless when it comes to using a cryptocurrency wallet or an exchange.

In this case, James would almost probably hire someone to assist him in gaining access to the bitcoin and then liquidating it. This may be really dangerous. The hired individual might move all of the funds in their wallet—and we all know how common such crypto frauds are in the crypto world.

This is only one example of a circumstance like this. Even if James learns how to use crypto-wallets, there are additional hazards to consider, such as transferring cryptocurrency to the wrong address, being locked out of devices, or withdrawing assets using the incorrect token standards.

Another thing to think about is how much information you should give out. 

Obviously, you’d have to hand up your private keys, but can you trust even one person with your crypto assets, or can you spread the information around? Although it has its advantages and disadvantages, it is a safe bet to spread your bets across a group of individuals.

Individuals would be unable to withdraw or steal your funds; however, identifying many parties has the disadvantage of causing the whole system to collapse if one person misplaces any piece of information.

Actions to take

Before writing a will, you should first move all of your crypto assets to a hardware wallet. While online wallets are the most user-friendly and convenient, they are also the most vulnerable to cyber-attacks.

Using a hardware wallet rather than an online wallet is one approach to keep your bitcoin safe. One of the best methods to safeguard your Bitcoin is to use a hardware wallet, which saves private keys on a secure physical device. Furthermore, they are virus-resistant, making it almost hard for hackers to take your cash.

Make it simple for your loved ones to locate and access your cryptocurrency wallet. Create a step-by-step tutorial on how to use your coin. Ensure that the submitted information is saved on a password-protected hard drive to prevent it from falling into the wrong hands. Assume that your recipient is unfamiliar with cryptocurrencies while crafting the instructions. 

Here’s an example of what instructions may be provided.

  • The name of the cryptocurrency exchange where you store your cryptocurrency. (WazirX, Binance, and others)
  • In the case of physical wallets: Keys to a private wallet
  • A secret seed phrase of 12 or 24 words is required for account recovery.
  • If you’ve enabled two-factor authentication (2FA), enter the location and password of the device on which the Authenticator app is installed.
  • Include information on the location and password of your current mobile device if your accounts are set up to receive OTP on mobile phones.
  • Set a password or save it to your hard drive.

After completing the list, a thorough review of these instructions will verify that you have included all of the information your loved ones will need to access your bitcoin.

Draw up a will.

Now that you’ve protected your crypto assets for your heirs. Now get a lawyer to prepare a will that specifies who owns access to your digital assets after you die.

If you don’t include crypto in your will, it will be considered “residue.”A list of everything you possess that isn’t accounted for in your will is known as residue or remainder.’ 

This includes your clothes, subscriptions, personal belongings, and so on.

Finally, add a note in your will of where you can locate your cryptocurrency. Endowing cryptocurrencies to your loved ones takes a lot more thought and preparation than bequeathing conventional assets. It is preferable to begin as soon as possible before too late.

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