What Happens to Your Bitcoin When You Die?
Table of Contents
- The Revised Uniform Fiduciary Access to Digital Asset Act creates clear mechanisms and guidelines for fiduciaries to access and manage Bitcoin in an estate
- Clearly establish a beneficiary and fiduciary with your Bitcoin custodian, or in estate legal documents
- Review your custodian’s terms of service to understand their how they plan to handle post-mortem account management
Planning for the Future
A 2020 study by the Cremation Institute revealed that almost 90% of cryptocurrency owners are worried about what will happen to their digital assets after they pass away. Currently, millions of Bitcoin are out of circulation due to loss, in many cases due to the owner passing away. However, with proper planning and storage, Bitcoin holdings can be accounted for and accessed after death. Depending on your current storage methods and purchasing activity, there are several options for ensuring your beneficiaries can access and accept ownership of your Bitcoin after your death.
Revised Uniform Fiduciary Access to Digital Asset Act (RUFADAA)
The Revised Uniform Fiduciary Access to Digital Asset Act (RUFADAA) extends the authority of fiduciaries to manage digital property and establishes the rules and regulations of digital asset account ownership and access for fiduciaries. RUFADAA also grants fiduciaries the immunity from criminal liability associated with copyright law or privacy law when accessing digital property in good faith and in compliance with RUFADAA.
However, RUFADAA protections and mechanisms are applicable to fiduciary responsibility only when access to bitcoin has been explicitly authorized through the custodian or in a relevant legal document, such as a will, trust, or power of attorney. In addition, RUFADAA allows custodians to limit fiduciaries access to accounts, such that fiduciaries can only access the information and portions of the account necessary to carry out their fiduciary responsibilities. Under RUFADAA, custodians can charge a “reasonable administrative charge” for the access they provide to the fiduciary.
RUFADAA has been accepted by almost 43 states since 2015. A significant benefit is the clarification of the legal hierarchy of fiduciary instructions and documentation of digital assets. Under RUFADAA, online management systems are the highest authority over account ownership. Therefore, establishing a beneficiary to your account through your account custodian takes precedence over wills, trusts, or POAs. If a beneficiary has not been established through a service or tool of the custodian, then decisions about Bitcoin accounts defer to estate planning documents or Power of Attorney. In the absence of both the previous conditions, fiduciary responsibility and transfer of bitcoin is established in the custodian’s terms of service.
Wills, Trusts, and Power of Attorneys
If your Bitcoin custodian does not provide tools for naming a beneficiary to your account, or you choose to self-custody your bitcoin, instructions for transferring control of bitcoin must be explicitly stated in estate documents, such as wills, trusts, or a power of attorney. Including bitcoin in an estate and ensuring it can be transferred to your intended beneficiary after your death requires including a plan for accessing online accounts, private keys, and hardware wallets.
In a will, trust, power of attorney, or other legal documents associated with your estate, it is essential to include directives for transferring the most sensitive data associated with your Bitcoin holdings, because only having physical control of a hardware device is insufficient for accessing bitcoin.
Terms of Service
Bitcoin brokerages and exchanges can have specific clauses in their terms of service outlining what can or will happen in the event the account owner passes away. In the absence of an established account beneficiary, through legal documents or through tools and services provided by the account custodian, RUFADAA specifies that the account custodian’s terms of service will control and direct the transfer of account ownership.
Some terms of service may prohibit a transfer of ownership, while others may outline specific steps to carry out a transfer of ownership. How an exchange handles this event can differ based on the services provided, and terms of service are not uniform from exchange to exchange, so it’s important to review the terms and conditions before opening an account.
The risk of losing access to Bitcoin investments is higher than traditional physical assets due to the decentralized nature of Bitcoin. The relative risk of your beneficiaries losing access to your bitcoin investments depends on how your private keys are stored. If private keys are lost or compromised, there is no recourse. Leaving detailed instructions on how to access accounts and private keys in estate documents, or naming a beneficiary with your custodian, is often the most secure method of guaranteeing successful reception by your beneficiary.
It may appear that sharing keys with trusted family members or your intended beneficiaries is a straightforward way to allow beneficiaries to access your account, but it is risky. Bitcoin ownership is based on key knowledge, and once others know your private keys they can claim ownership of your Bitcoin with no recourse opportunities. In addition, those that you share your keys with may not understand security best practices or store sensitive information in the same manner as you do.Notice: River Financial does not provide investment, financial, tax, or legal advice. The information provided is general and illustrative in nature and therefore is not intended to provide, and should not be relied on for, tax advice. We encourage you to consult the appropriate tax professional to understand your personal tax circumstances.