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Lifetime Planning and Wills specialist, We are increasingly acquiring digital assets, and in an earlier article, I explained the importance of including them in your Will.
A digital asset is anything created and stored digitally that is:
- identifiable; and
- discoverable; and
- has or provides value.
Examples of digital assets are:
- Photos stored on your phone or PC.
- Higher quality photos capable of being sold or licensed.
- Digitally created art (the phrase ‘non-fungible token’ is never far from the news these days!)
- Websites and blogs.
- Domain names.
- Digitally-held manuscripts.
- Cryptocurrency.
Crypto inheritance
Perhaps the greatest digital inheritance risk for families and dependents is lost cryptocurrency. Despite their notorious volatility, there’s little question that these currencies are now a permanent feature of the financial landscape. But there are several well-publicised examples of super-wealthy cryptocurrency investors dying without sharing the location of the digital keys required to access their fortunes. And those cases represent just the tip of the iceberg.
There are currently almost 22,000 cryptocurrencies in existence. The best known, Bitcoin, has around 24 million addresses open. Of course, that’s not to say there are 24 million Bitcoin investors, as a person can have more than one wallet. However, it indicates the extent of the potential risk, particularly as most investors are younger and, therefore, less likely to have given serious thought to crypto inheritance planning. The current estimate is that around 4 million Bitcoin are lost – at today’s price, that’s almost £56 billion!
Crypto inheritance planning
So, if you hold cryptocurrency, what steps should you take to secure the investment for your dependants?
First, if you haven’t done so, you should make a Will.
Crucially, you should ensure that your executors know you have cryptocurrency investments. Make an inventory for them and keep it updated. If a third-party provider (eg an online wallet provider or exchange) holds the cryptocurrency, include details of the provider in the inventory.
Some cryptocurrency exchanges have specific policies and procedures for what happens when an investor dies. Check those carefully to find out what happens to your virtual wallet.
Do not include the inventory in your Will, as it becomes a public document following probate. However, your Will (or an accompanying letter of wishes) might include instructions to your executors on how you would like your digital estate administered.
It’s also just as important to put in place a Lasting Power of Attorney (LPA) to address what happens should you lose mental capacity. The LPA should include explicit authority for your attorney to deal with your crypto assets.
Of course, for your executors and attorney, you will need to plan for how and when you will pass on the private keys to virtual wallets and the passwords to the hard drives containing the cryptocurrency.
Crypto trust
Trusts are a common estate planning tool both in Wills and in lifetime. But the volatility of cryptocurrency means they are a long way from becoming a mainstream trust investment. Trustees have legal duties and must invest prudently, and crypto assets are difficult to manage. That said, some professional trustees are now willing to administer trusts containing cryptocurrencies as long as each crypto asset is held and managed by a reliable third-party custodian.
Cryptocurrency and tax
The tax position of crypto assets is often complex. Selling, receiving or gifting cryptocurrency has implications for Capital Gains, Inheritance, and Income Taxes, and taking advice is essential.