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AI Summary - If a cryptocurrency owner dies without a will or instructions, their digital assets may be lost forever. To ensure your heirs can access your crypto, it's important to clearly document your holdings and share access information with them. Proper planning, including naming beneficiaries and using secure wallets, can help protect your investments and facilitate their transfer.

According to an article in Investopedia, if an individual holding cryptocurrencies dies without a will and without providing instructions on accessing those holdings, the long and short of it is that they are lost forever.
By some estimates, about 20% of all Bitcoin tokens are lost and unrecoverable.
Cryptocurrency as a Digital Asset 
In some counties, including the U.S, cryptocurrencies are considered by the tax authorities to be digital assets - that is, the government treats crypto tokens as property rather than as currency. This means that crypto holdings are potentially subject to capital gains tax. In such cases, you may need to specifically name a beneficiary to inherit cryptocurrency investments.
When the beneficiaries of your crypto holdings use those tokens as a payment method or go to exchange them for fiat currency, it will likely trigger a tax event, and they will need to calculate capital gains or losses.
If you give crypto as a gift, it won't be recognized as income until it's sold or exchanged. On the other hand, investors can make use of the volatility inherent to the crypto market when it comes to taxes. By gifting tokens at a time when values are low, for example, investors can minimize transfer taxes.
Crypto Challenges in Estate Planning
When cryptocurrencies are treated like property rather than currencies, they go through a probate process similar to real estate or tangible assets.
While a will may make it legally clear that, say, your children own your crypto holdings, this is no guarantee in and of itself that they will be able to access and use those holdings.
When crypto investors die without a will, their investments pass according to their country or state's intestacy laws. Depending on location, this likely means ownership of the assets will transfer to a spouse or children, although the exact mechanism for this distribution varies.
If your beneficiaries do not have the means to access a wallet holding crypto investments you intended to pass along to them, there may be no way to gain control of those holdings. If you do not name beneficiaries in a will, the digital assets may be disposed of, which may trigger a tax event for your estate.
Estate planning for cryptocurrency investments should also include preparations for someone in a fiduciary or executor role who is appointed to safeguard the control of those tokens for a period.  It's essential to choose a fiduciary familiar with cryptocurrency, who can help you navigate security issues.
How To Ensure Your Beneficiaries Inherit Your Crypto
An article by CryptoAssetRecovery.com highlighted several steps investors should take to facilitate a smooth and complete transfer of cryptocurrency ownership.
These steps include:
1. Informing Your Heirs 
Make sure that your loved ones—or at least your lawyers—know that you have crypto - and in which wallets they are stored.
2. Document (and Secure!) Backup 
Record seed phrases or other forms of backup, store them safely, and share with people you trust. Documenting the ways to access your wallets is essential as well.
3. Test Your Recovery Seeds 
While you still have access to your digital wallets, test the recovery seeds to ensure that they will work for your next of kin and that they are linked to the appropriate wallet containing the assets you wish to transfer.
4. Build in Redundancy 
Consider upgrading your plans using secret sharing and/or multi-signature techniques to share partial backups with multiple people, helping to protect them against theft during the process of transfer to a beneficiary.
5. Consider Using a Custodial Service 
While many crypto investors may not use a custodial services due to the history of hacks targeting these companies, custodians have extremely robust security practices for transferring assets to your estate after death.
6. Don't Count on Current Technology 
Investors shouldn't rely on mobiles or wallets as a backup method. Some of the most popular crypto wallets of today may no longer be supported by the time of your passing. It is quite easy to lose access to your cryptocurrencies, either by losing access to your wallet, your private key, or other essential information.

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