So You’ve Inherited Crypto and Lost the Passcode. What Now?

Posted by Debby EhrlichDec 23, 20210 Comments

The acronym “S.O.L.” aptly describes a cryptocurrency holder who has lost their digital keys. Whether you've invested five dollars or multiple millions, losing your crypto passcode (or identifiers that would otherwise grant you access) is equivalent to locking the vault and throwing away the key.

Skilled professionals may recover lost crypto passcodes for the right price. Those same professionals estimate that $4.7 billion in crypto assets remain stranded in locked accounts—suggesting that recovery of lost passcodes may be easier said than done.

The secret to accessing a locked cryptocurrency wallet is simple: don't lose the passcode. Simple as it sounds, protecting your passcodes requires a plan, and that plan requires a backup plan. Those without a thorough succession plan for their crypto assets should:

1)   Learn not to trust themselves

By all appearances, Stefan Thomas is a smart, responsible guy—smart enough that the programmer and CEO amassed $220 million in crypto assets at a young age, and responsible enough to lock his crypto passcodes in a secure hard drive. Capable as he is, Thomas somehow forgot the password to unlock his hard drive—the key to his $220 million would-be fortune.

Thomas says he’s “made peace” with his lost riches, and his story serves as an invaluable lesson to others: Don't trust yourself when it comes to cryptocurrency passcodes. Create a legal document containing passcodes for your digital assets and entrust the document to an estate-planning attorney.

2)   Update your estate as passcodes and circumstances change

The legal document containing your crypto passcodes should note:

  • How much crypto you have
  • Where you store each coin
  • Instructions for accessing each storage location
  • That the trustee of your estate is legally entitled to the crypto under certain conditions, such as your passing

As you buy and sell crypto, move assets around, and—this one is critical—change passcodes, update your legal document accordingly.

History is littered with those who planned to add their crypto to their estate plan but simply never got around to it. Don't repeat their mistakes.

3)   Discuss your plan and practices with your trustee

Your estate plan should be detailed enough to stand on its own. Ask yourself: If I passed away today, would the trustee of my estate be able to access and distribute my crypto assets as I intend?

Even with thorough written instructions in place, you may gain much from a crypto-specific discussion with your trustee. You may ensure that they have a basic understanding of crypto and your particular assets. You may also encourage them to employ the same practices, including maintaining a thorough legal document containing all crypto passcodes.

Make Plans for Your Crypto, and Your Loved Ones, Today

Heed the tragic story of Matthew Mellon, who passed away with millions in crypto assets in cold storage, leaving uncertainty about how to access the funds. There are countless other stories like his—stories of unexpected passing, crypto fortunes lost, and loved ones deprived of financial support.

Even if you don't have a “fortune” in crypto, any amount is worth protecting. An estate planning professional will make a plan for your crypto assets today, ensuring your heirs receive all of the funds that you plan to leave them.

Call DME & Associates LLC today at 805-312-8059 for a consultation. You've got everything to lose from failure to plan—including those passcodes.