If you’re holding a substantial amount of crypto and have kids you’ll want to know what happens to it when you die.
Just write down your key
What if you die unexpectedly and don’t have a chance to give your heirs your private key? This would certainly be a problem and you don’t want your kids to be one of those poor schmucks excavating landfills due to poor record-keeping. This risk is well managed, though, if you just write down your private key, put it in a safety deposit box, and gift the contents of the safety deposit box to your heir upon your death.
This feels inherently risky because there aren’t the typical third parties involved to facilitate the transfer of wealth, e.g. no estate attorneys, no bank, no executor, no government, etc. While some people might see this as a bug, it’s one of the inherent features of blockchain technology– no third parties needed to facilitate trust in transactions.
Tax benefits?
Assuming you provide your heir with the private key before you die and assuming you don't list your crypto in your will, it seems like this would be an easy way to transfer wealth to your children without incurring traditional estate taxes. Presumably the government would like you to pay estate taxes on these types of transfers but I'm not sure how enforceable that is right now.
Related, Sen. Warren (no relation) has recently said that crypto is a tool used by tax cheats. To me this statement seems less like a warning and more like pro-tip that crypto can be used to cheat at taxes, but I’m a half-glass-full kind of person.
Still risky
Probably a bigger risk to transferring wealth in crypto is that most coins are still extremely volatile and subject to a large amount of systematic risk, so while you could be gifting your children lots of money today it could be very little money by the time you actually die. You’d have to really be on top of your crypto portfolio while on your deathbed to avoid bequeathing your child a bunch of shitcoins, which sounds both impractical and unpleasant.
The bottom line
Crypto isn’t a good way to bequeath wealth to your children because it’s risky– not because it’s hard to transfer. This might change in the future if coins become more stable.
It reminds me of a story my dad told me: He was in Alaska on a fishing trip. A pilot/guide was flying him to a fishing spot in a float plane. My dad was in the front right seat. He asked the pilot "what should I do if you have a heart attack and become incapacitated?" Pilot: "I don't care."
Applauding a well written essay!