Cryptoassets in Estate Administration

As cryptoassets become more popular, they will become increasingly common assets which personal representatives (“PRs”) must deal with as part of their duty in administering an estate.

The PRs’ first task is to identify and locate the assets and liabilities in an estate, which might include cryptoassets (such as cryptocurrencies or NFTs (non-fungible tokens)). However, identifying and locating cryptoassets can prove difficult or even impossible if the PRs are not aware that the deceased owned cryptoassets. Unlike with bank accounts or shareholdings, for which account statements will be sent or which will often be located using estate assets searches, the same cannot be used for locating cryptoassets. Cryptocurrency exchanges will not generally issue account statements nor can privately stored cryptoassets be located on a public record. The deceased may have been storing their cryptoassets on cryptocurrency exchanges, in digital wallets stored on their phone or desktop, or offline in a device known as a cold storage wallet.

If PRs can locate cryptoassets, they will then need to gain access to them. For cryptoassets kept on exchanges, the exchange company may allow access when the PRs are able to provide a Death Certificate and Grant of Representation (similar to the process with banks), but this is not the case for cryptoassets stored in digital or cold storage wallets. For these types of storage, the PRs will only be able to gain access if they know the recovery phrase or private key to access those wallets, but a Grant of Representation is not usually required. However, without access to the wallets, the cryptoassets will be lost and unretrievable forever. It might be possible for an expert to search the deceased’s devices for wallets and account details to be able to gain access, but this might not always be successful.

Given the hurdles of location and access discussed above, it is recommended for an owner of cryptoassets to ensure that access to their wallets is securely recorded and also stored securely so that it can be accessed by the PRs. It is advised that details of access are not written into the owner’s Will as it becomes a public document following death, which could give anybody with sight of the Will the means to access those cryptoassets.

If the PRs are able to successfully locate and access the cryptoassets, they might consider transferring the deceased’s cryptoassets to a wallet that is controlled by them to ensure that they have the only access to those assets for the remainder of the estate administration. The PRs may not know who else has access to the deceased’s wallets.

When finalising the estate administration, the PRs will need to distribute the estate in accordance with deceased’s Will or intestacy rules. In the context of cryptoassets in the estate, this will require the PRs to either transfer the cryptoassets to beneficiaries, or sell the cryptoassets and distribute the proceeds. If the PRs are required to sell the cryptoassets it may be necessary for them to seek advice from an investment adviser with specialism in cryptoassets.

Throughout the estate administration the PRs must also consider the Inheritance Tax (“IHT”) position of the estate, as well as Capital Gains Tax (“CGT”) on disposal of assets from the estate and Income Tax on income received during the estate administration. HMRC has confirmed that cryptoassets will be liable to IHT, CGT and Income Tax just as other assets are also liable. PRs should seek advice on the events which may give rise to a tax liability in the estate administration.

In summary, with cryptoassets becoming increasingly common in the UK, it is important for PRs to know how to deal with such assets correctly. We are able to offer advice and assistance to PRs in administering an estate, including estates which involve cryptoassets.