If you’re merely dipping your toe in cryptocurrency, it can be hard to imagine your crypto as something worth talking to an estate attorney about. But that $100 in fun money could grow to a significant percentage of your total investments, sometimes overnight. Sorry to be a downer, but YOLO — so make a plan for your crypto in the event you pass away.
Crypto accounts aren’t like traditional investment accounts. They can be more vulnerable to security issues, and you generally can’t name a beneficiary. For example, if you store your crypto on a physical device at home and a few friends know your key — a password of sorts that grants access to a crypto wallet — one of those so-called friends could wander into your house and steal your crypto as easily as they could walk off with your great-grandmother’s diamond earrings. Or, if you shared the keys with no one, your crypto is lost forever.
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It’s important to understand how to safely store your crypto and communicate your wishes with your loved ones, just like you would with any other valuable asset.
Know how your crypto is stored
You trade and store crypto in wallets, but not the leather kind. Crypto wallets can either be digital and managed on an app or website, or physical like a thumb drive. The kind you choose depends on what you intend to do with your crypto.
- Hot wallets: These are used for trading and purchasing crypto. The upside is they’re typically free and convenient, but the downside is they’re less secure because they’re always connected to the internet.
- Cold wallets: These are used to store crypto for a longer period of time. Think of it like putting your crypto in a freezer.
The hot wallet is like a checking account — with money moving in and out — while the cold wallet is more like a savings account, where you park money for a longer time. You can have both at the same time.
Whoever holds the keys — that is, who maintains custody over a password of randomly generated numbers and letters — has access to your crypto. It could be you, a third-party crypto exchange or a hybrid of both.
“Don’t keep more than you’re willing to lose on a third-party exchange as a long-term solution,” says Alex Mejias, founder and managing attorney at James River Law in Richmond, Virginia. “You don’t control the keys. They …….