Digital Assets and Cryptocurrency: What Long Island Families Need to Know About Estate Planning
As cryptocurrency ownership continues to surge on Long Island and across the nation, families are discovering that their digital wealth requires specialized estate planning strategies that differ significantly from traditional assets. With approximately 6.8% of the global population invested in some form of cryptocurrency in 2024, representing over 562 million people worldwide and a 33% increase compared to 2023, the need for proper digital asset planning has never been more critical.
The Growing Challenge of Digital Asset Estate Planning
Unlike traditional bank accounts or investment portfolios, cryptocurrency presents unique challenges for estate planning. The New York Times estimated that $140 billion worth of cryptocurrency had been lost or stranded in inaccessible digital wallets as of 2021, highlighting the dire consequences of inadequate planning. Unlike stocks and bonds, nobody will know your client owns crypto assets unless they provide that information in their estate plan and detail how to access it.
The decentralized nature of cryptocurrency means crypto wallets exist beyond centralized control, which gives them security and privacy but also creates enormous risks for beneficiaries who may not even know these digital assets exist. For Long Island families, this presents a significant risk of losing substantial wealth simply due to lack of proper planning.
Key Considerations for Long Island Families
Documentation and Inventory: The first step in protecting your digital assets is creating a comprehensive inventory. Recording all holdings, including exchanges used, wallet types, token names, and each coin’s location, forms the foundation for a workable plan. However, these details should never be added to a will directly, since wills become public in probate, but they can be kept in a separate letter of instruction or private memorandum.
Access and Security: One of the most critical aspects of cryptocurrency estate planning is ensuring your heirs can access your digital assets. Cryptocurrency lives on the blockchain, where access is everything. If you pass away and your loved ones can’t access your digital wallet or private keys, your crypto assets could be permanently lost.
Choosing the Right Fiduciary: Most traditional executors may not have the technical skills to manage digital wallets, and losing access could mean losing entire estates. Choosing an executor who understands how cryptocurrency works, how to transfer it securely, access private keys, decode storage systems, and avoid scams, is essential when these assets form a significant part of one’s wealth.
Advanced Planning Strategies
For families with significant cryptocurrency holdings, sophisticated planning strategies are available. Some attorneys work with clients to set up trusts and “multi-signature” wallets that allow a third-party custodian, along with the estate attorney and beneficiaries, to gather separate passcodes/signatures. When enough signatures are gathered, they can build the ability to sign a transaction and move the digital assets to the beneficiary.
Trust structures offer particular advantages for digital asset planning. Trusts can be evaluated for specific situations to determine what estate plan best serves your needs, including whether to create a trust for holding your digital assets. Not everyone will have the same considerations or need the same protection, but a trust can simplify cryptocurrency asset management for some families.
Tax and Regulatory Considerations
The regulatory landscape for digital assets continues to evolve. The Internal Revenue Service treats cryptocurrency as property – applying general tax principles to transactions involving crypto. This classification affects how digital assets are valued and taxed within estate plans.
For Long Island families, understanding the volatility of cryptocurrency values is crucial for estate planning. Recent swings in bitcoin’s value have included a +700% bull run in 2020 and 2021, a -50% bear run in mid-2021, a -75% bear run in late 2021 into 2022, and a +130% run in 2024. This volatility creates both challenges and opportunities for estate planning strategies.
Why Professional Guidance is Essential
Given the complex and rapidly changing legal landscape, working with an estate-planning attorney who understands cryptocurrency is essential. Long Island families need attorneys who can navigate both traditional estate planning principles and the unique challenges posed by digital assets.
At Fratello Law, located in Smithtown, the firm understands these evolving challenges facing Long Island families. Their Long Island elder law and estate planning attorneys are sympathetic to the individual needs of their clients, exercising patience, care and diligence, while taking pride in focusing on each client’s individual needs and taking the time to understand those specific needs. For families seeking comprehensive guidance on digital asset estate planning, consulting with an Estate Planning Attorney Smithtown who understands both traditional and digital asset planning is crucial.
Taking Action: Protecting Your Digital Legacy
The time to address digital asset estate planning is now, not later. Taking simple steps to update estate plans to account for these investments can prevent valuable assets from disappearing after death, preserve legacies and protect loved ones from additional burdens.
For Long Island families, this means working with experienced professionals who understand both the technical aspects of digital assets and the legal frameworks governing estate planning in New York. It’s advisable for individuals, especially those with significant digital assets or online presence, to consult with estate planning professionals who are knowledgeable about the intersection of technology and estate law to ensure that all assets, both tangible and digital, are properly accounted for and managed after death.
As digital assets become an increasingly important part of family wealth, proper estate planning ensures that your cryptocurrency investments benefit your intended heirs rather than becoming permanently lost in the digital ether. The key is acting now to create a comprehensive plan that addresses both the opportunities and challenges of our digital age.