It’s not unexpected that managing a loved one’s digital assets after their passing is a duty that is becoming more and more prevalent as more and more areas of our life transfer to the digital realm. Due to its rising popularity, cryptocurrency is a digital asset that frequently makes news. Due to cryptocurrency’s early development (in the first decade of the twenty-first century), many people are still unfamiliar with it and may unintentionally skip the estate administration stage of dealing with cryptoassets.
What is cryptocurrency?
Cryptocurrency is digital money which uses encryption techniques to generate currency and verify the transfer of funds. It has been designed to be quicker, cheaper, and more reliable than our regular government-issued money, removing the middleman in all transactions. However, it’s important to note that there is currently no regulation for the ownership or transfer of cryptocurrency in the UK; therefore, many are still doubtful about using it.
There are various forms of cryptocurrency, including the likes of Bitcoin, Ripple, Ethereum, Litecoin, and Dogecoin. As of February 2022, Statista reported that there were 10,397 cryptocurrencies, which highlights the importance of ensuring cryptocurrencies are accounted for during estate planning and estate administration.
Currently, only one country in the world has adopted Bitcoin as an official currency. In September 2021, El Salvador adopted the cryptocurrency as an official currency alongside the US dollar. This was a controversial decision, with the International Monetary Fund (IMF) urging the country to reverse the decision and large-scale protests over the potential “instability and inflation”.
Can you inherit Bitcoin and other cryptocurrencies?
Yes, you can inherit Bitcoin and other cryptocurrencies upon death. A loved one can legally bequeath it to you in their estate plan like any other asset
Can cryptocurrency impact the amount of inheritance I receive?
Absolutely. Although the UK does not currently consider cryptocurrency as an official currency, HMRC’s Cryptoassets Manual states that “cryptoassets will be property for the purposes of Inheritance Tax”. Therefore, cryptocurrency needs to be seriously considered when written into Wills to avoid hefty Inheritance Tax bills. It’s worth noting that Inheritance Tax does not apply to all estates, as any part of an estate that passes to a spouse/civil partner or a charity is exempt from an Inheritance Tax liability
How can I establish if a deceased person had cryptocurrency?
As ownership is pseudonymous, there is no way of knowing when someone owns cryptocurrency in the same way that there is no way of knowing if someone has a bank account with a high street bank; you won’t know unless they tell you. To gain access to someone’s wallet, you will need to know the public and private keys. These keys are essentially the codes, or passwords, that log you into the virtual wallet to buy and sell the cryptocurrency from the exchange. Without this information, the cryptocurrency wealth is unreachable
What will happen to my cryptocurrency when I die?
As previously mentioned, cryptocurrencies are stored in a virtual wallet. Each wallet uses a string of random characters called a public key, visible to anyone, as an address for sending and receiving the cryptocurrency. A separate private key allows the owner to access the money in the wallet. If an owner dies without passing on the private key, the wallet may be discovered, but it will not be possible to gain access to the wealth inside
To prevent this, the owner must ensure that someone knows about the currency and gets a copy of the private key to access the wealth in the wallet. If a Will is written, the cryptocurrency will be distributed as per the expressed wishes. If there is no Will, also known as dying intestate, and the private key is known, the cryptocurrency will be added in with the total value of the estate and distributed following the rules of intestacy.
When the 30-year-old founder of the Canadian cryptocurrency exchange Quadriga CX suddenly died in 2019, it was reported that he was the only one who had a key to the company’s reserves, and his encrypted laptop could not be bypassed. Unfortunately, this resulted in thousands of customers losing investments worth a combined $190m. This story reinforces the importance of ensuring that cryptoassets are planned for when making provisions for your estate.
How should I account for cryptocurrency in my estate plan?
According to GoBankingRates, the following steps should be taken to ensure cryptocurrencies are accounted for when estate planning:
Ensure all usernames, passwords, and private keys are stored using a password manager. The master password should then be stored with your Will and other estate planning documents. To ensure your Will and other documents are easily locatable when the time comes, consider keeping these important documents in a secure document storage facilityCreate and maintain a list of your digital assets. Remember to review and update your list whenever you acquire a new digital asset. Try and review the list at least once a year to ensure nothing is missedStore and manage your cryptoassets using a digital wallet. As explained with the Coinbase example detailed above, various exchanges have death-management processes that allow Personal Representatives to gain access to your assetsUpdate your Will with details on how you would like your cryptoassets to be administered
Our prefered partner Kings Court Trust is an award-winning probate and estate administration provider that provides support to families at the difficult time of losing a loved one. They offer a range of services that offer different levels of support during the estate administration process, relieving loved ones of the administrative burden. If you have any questions regarding estate administration, call our Client Services Team on 0800 368 9770