Cryptoassets - what happens to them after I die?
You may have seen a rise in the number of adverts for cryptocurrency investments, or heard more discussions relating to Bitcoin, or that more businesses are beginning to accept cryptocurrency payments. Despite their volatility, cryptocurrencies are becoming an increasingly popular investment.
As the number of cryptocurrency investors rises, an important question should be considered: what would happen to a cryptocurrency portfolio on death? This article will answer this question and provide a brief outline of what cryptocurrencies are.
What is a cryptocurrency and what is their legal position?
Cryptocurrencies, otherwise known as cryptoassets, are a type of decentralised digital currency. This means that they are controlled independently from any centralised organisation, such as a central bank. Cryptocurrencies are supported by an unchangeable public ledger, known as a Blockchain. The most popular cryptocurrency is Bitcoin.
Currently in UK law, cryptocurrencies are treated as property, which means that they can be owned, gifted, inherited and taxed.
If no centralised organisation controls the cryptocurrency, where are they stored?
Each cryptocurrency owner will use a digital “key” to access the cryptocurrency and enable transactions. These keys are unique and known only to the owner.
These keys can be printed on paper, or stored in digital wallets such as an external hard drive or on a computer. If the key and/or wallet is lost or destroyed then the cryptocurrency will still exist on the public ledger (Blockchain), but will be unreachable by the owner.
What happens to cryptoassets after death of the owner?
As cryptoassets are treated as property, the assets will form part of the deceased’s estate. This will mean that the assets may be subject to inheritance tax and the assets will be distributed by the terms of the Will or intestacy rules. To action this, the personal representatives will need access to the cryptoassets. As mentioned above, access can only be granted to those that know the private key and/or the login information for the digital wallet.
If the key information cannot be found or the wallet cannot be accessed by the personal representatives, then the cryptoassets will be unreachable and cannot be transferred to the beneficiaries or sold. Unlike with banks, there is no centralised register or organisation that can be contacted in order to retrieve the funds.
Therefore, it is vitally important that the owner of cryptoassets leaves details that will allow the personal representatives to gain access to the assets after the owner’s death. This could be on a separate piece of paper that is stored with the owner’s Will.
Can cryptoassets be gifted in a Will?
As mentioned above, cryptoassets are treated as property and so they can be gifted in a Will.
Caution must be taken in writing cryptoassets into a Will as it will become a public document when a Grant of Representation is issued during Estate Administration. Important information relating to the cryptoassets should not be disclosed in the Will as this would be a significant security breach of the asset, essentially allowing any member of the public who views the Will to access the cryptoassets.
How can we help?
We are able to assist in drafting a Will suitable for your needs, including gifts of cryptoassets and can offer advice in relation to inheritance tax planning. We are also able to assist in an estate administration which may involve cryptoassets.