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Nov. 17, 2021, 4:59 a.m. EST

Can you leave cryptocurrency to your heirs? Here’s how to do it safely

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By Sara Rathner

This article is reprinted by permission from

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 die.

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.

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 could freeze your funds or get attacked.” Mejias recommends a self-custody or hybrid option as the value of your crypto grows.

Also see: A simple checklist to get your wishes met later in life

Keep your crypto secure, yet accessible

A cold wallet can be a small physical storage device that’s easy to misplace. Your cold wallet requires a PIN code for access, plus you set up a recovery phrase as a backup in case you lose your key. According to Mejias, a fireproof safe at home or a safety deposit box at a bank is a must, but don’t store your cold wallet in the same place as the note containing your key, PIN and recovery phrase. If someone finds all of those items together, it’s bye-bye bitcoin /zigman2/quotes/31322028/realtime BTCUSD -0.64% .

Above all, design a storage method that makes sense. “Don’t get so cute that you make some complicated system that you can’t remember,” Mejias says. He’s heard of people writing down their keys and cutting the paper into three pieces, hiding each piece in a separate location. “It sounds like a good idea, but it’s a horrible idea. If you lose one of those three, it’s gone forever. You’ve tripled your risk.”

Related: The 5 most common questions about trusts

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