Let’s answer a crypto question from Haille: How does crypto transfer on death?
We’ve covered this topic in episodes 214, Transferring Bitcoin Upon Death, and E222, Beneficiary Designations for Cryptocurrency Exchanges, but we’re happy to answer Hallie’s specific questions here.
Is the will required to be probated if the beneficiary of the will has access to the Coinbase holder’s account?
Yes, to legally access that account, you must probate the Last Will and Testament of the decedent.
Individual Coinbase accounts do not have beneficiary designations. (Most major exchanges don’t; this is not specific to Coinbase). A formal beneficiary designation means that it is technically your account, but that is not the case here. You need to submit letters testamentary and death certificate to Coinbase, and they will grant access to you.
Could the beneficiary simply transfer those funds to themselves?
Technically, yes, but it could lead to legal problems.
This is substantially similar to dealing with a traditional bank/brokerage account. Like a Chase or a Fidelity account, for example: just because you have the decedent’s username and password does not mean that you can legally access the account. You have to go through the process before you make transactions. It’s tempting to think of these as different situations, because cryptocurrency might not feel like “real” money. But, once you compare it to a bank account, then it makes sense to go through the proper process to access the funds.
Why can’t I access deceased online accounts?
As a general explanation, the probate process is meant to protect all possible heirs/creditors.
“I’m the heir named in the will, why can’t I just take the money?” Well, what if the will is invalid for some reason? Maybe it wasn’t signed correctly or signed by an incompetent person.
Even if the will is valid, there are situations where other people are entitled to the funds before you. There could be a “spousal election” where a disinherited spouse has a right to submit court paperwork and take a share before you.
Additionally, IRS or other creditors are entitled to receive funds before you. Suppose the decedent died with major debts. The beneficiary named in the will gets what is left after the debts are paid.
These are just a few examples. Even if these don’t apply to your situation, it doesn’t mean that you can skip probate! The probate process, albeit long and involved, is an important layer of protection.
Hopefully this answers Haillie’s questions. We love trying to wrap our heads around these cryptocurrency situations, so please feel free to keep sending questions!