As more people are investing in digital assets the prospect of people dying while owning digital assets is a reality. Between 2018 and 2019, the number of Americans owning digital currency nearly doubled, with men being the majority of those owning digital assets (Perrin, 2021). So, if you find yourself as an executor of the estate of your spouse, brother, father, or significant other, you may want to consider the likelihood that digital currency is part of their estate.
What are Digital Assets?
The simplest explanation for digital assets is that they are digital representations of value that can be invested, traded, exchanged, or used for payments. In this way, they can be thought of as any other asset your loved one may have owned, similar to their prized collection of baseball cards or collectible coins, just a “digital” and cryptographically secured version. The most common types of digital assets are cryptocurrency and non-fungible tokens (NFTs).
How Will I Know if My Loved One Owned Digital Assets?
Current research shows that ownership in the US of digital assets like cryptocurrency and NFTs is around 16% for those 18 and over, which is about 41 million adults (Perrin, 2021). Given the rapid growth in ownership, the likelihood that your loved one may have owned digital assets is increasing.
However, determining who owns cryptocurrency or NFTs and getting access to these digital assets can be challenging. Unlike a collection of baseball cards or collectible coins which you can see and touch (the tangible nature of these assets makes it easy to quickly identify what they are), digital assets exist only virtually and are kept safe in crypto wallets. Thinking through your loved one’s investment interests and appetite for digital investments may be your first and (possibly) only clue. However, if your loved one had a financial advisor or lawyer with whom they shared their investment portfolio, contacting them to inquire about this may give you further insight into whether they did or did not own digital assets.
What is a Digital Wallet?
To be technically correct, digital wallets don’t actually contain digital assets. Digital wallets contain the necessary information that links the digital asset to the owner. This link is in the form of public encryption keys (public key) and private encryption keys (private key). While this may seem confusing, the most important thing you need to know is that the wallet is a crucial step in deciphering ownership of digital assets.
What are the Types of Digital Wallets?
Hot or Cold Wallets
- Hot wallet: A wallet that is connected to the internet.
- Cold wallet: A wallet that is not connected to the internet.
Custodial or Non-custodial Wallets
- Custodial wallet: The owner of the digital asset (your loved one) shares their private key with the wallet host company.
- Non-Custodial wallet: The owner of the digital asset (your loved one) did not share their private key with the wallet host company.
It is important to keep in mind that people who own digital assets can have more than one digital wallet, depending on how active and diversified they were with their digital currency. Digital wallets are used to track ownership of all digital assets including both cryptocurrency and NFTs.
So How Do I Know Which Type of Wallet My Loved One Had?
Regardless of what type or how many crypto wallets your loved one used, you can make some pretty educated guesses as to which type of wallet they may have had. For example, if your loved one was someone who was an experienced crypto user who didn’t like to save passwords or store private information online, they would likely have used a cold, non-custodial wallet(s). Cold, non-custodial wallets can be tracked by literal pieces of paper stored in a safe or safe deposit box with passwords or even whole encryption keys written on them (shown below), or they can be physical devices that look like USB devices (referred to as a hardware wallet) that are also typically stored in a safe or safe deposit box, along with the password or access code. For clarity, hardware wallets can be both hot and cold, but are less likely to be linked to a custodial wallet. On the other hand, if your loved one seemed to be less concerned with online safety and more frequently engaged with digital assets (buying, selling, or using crypto) then they would most likely have used a hot, custodial wallet and were most likely using one of the top 5 exchanges to trade and engage with digital assets.
You Found the Wallet and The Key, Now What?
If you determine that your loved one owned digital assets at his or her death, the first thing you will want to do is secure any and all wallets, as well as any paperwork, access codes, passwords or any other information you have related to the wallets. This could include securing them in a home safe or safe deposit box until they are needed during the estate administration process. This is an extremely important step, because when it comes to cryptocurrency and NFTs, the private keys are all that matter to demonstrate ownership. Without them, getting access to the underlying digital asset will be difficult, if not impossible.
The process may differ depending on which exchange your loved one used to hold digital currency. Some exchanges do not have their process formalized, which may mean calling the exchange and explaining the situation. However, for those that do have a formal process of closing or transferring the ownership of a loved one’s digital currency, the process typically includes showing proof of death (death certificate), legal documents appointing you as the executor of the estate (letters testamentary, letters of administration, executor’s certificate, etc.), and proof of digital ownership (wallet, key, etc). Listed below are links to the processes for two of the largest exchanges; Coinbase and Kraken. Many other exchanges don't have a formal process outlined, which may add additional steps and/or complications.
Should you need further assistance, services like Trustate can help collect, organize, communicate, and administer your loved one’s physical and digital assets in order to correctly administer their estate. For more information, please visit trustate.com or email firstname.lastname@example.org