‘Crypto’ or crypto assets most certainly can be inherited upon death. If you have invested in cryptocurrency, then you can legally bequeath it to beneficiaries named in your will, unless held under a licence.
What types of crypto assets are there?
Cryptocurrency is a type of crypto asset or token which can be transferred, stored and/or traded electronically. There are different types of crypto assets, which work in different ways. The main type of crypto assets include:
1) Exchange tokens i.e. cryptocurrency such as Bitcoin
2) Utility tokens – provides the holder access to goods or services on a platform using distributed ledger technology. This is a type of database that is decentralised in nature, eliminating the need for an intermediary to process, validate or authenticate transactions.
3) Security tokens – these allow businesses to raise capital to fund an idea or business model by selling equity tokens. The business offers security tokens in exchange for money or other crypto assets. This then leads to the security token holder having interest in the business.
4) Non-fungible tokens (NFT) – non-fungible means that these tokens cannot be exchanged for one another, each one is unique. The tokens exist on a distributed ledger or blockchain technology. This records ownership of a unique tangible or intangible object e.g. a song, item of clothing, image, art work etc.
Most people will be able to identify with Bitcoin and many of you will have read about cryptocurrencies falling in value in the first half of 2022.
What is blockchain?
Blockchain is a type of distributed ledger technology. A distributed ledger is a platform that is a shared digital ledger of blocks of information held across numerous computers, often referred to as nodes, that record users’ digital transactions e.g. buying and selling Bitcoin. This can be compared to a bank statement. Blockchain data is secure and tamper resistant and held indefinitely.
Without blockchain technology then NFTs or cryptocurrencies would not exist.
How do you pass on cryptocurrency e.g. Bitcoin on death?
As cryptocurrency is stored using a virtual wallet and a private key is needed to open it, it is imperative that this information is recorded and kept in a safe place. Ideally, when providing will instructions, you should make it known that you have cryptocurrency, the type of cryptocurrency, the device that you use to access the cryptocurrency together with where the passwords are kept and most importantly these could be held by a trusted helper together with details of the private key so that they can access the wallet using your device after your death only. Access by a third party at any other time may be in breach of the section 1 of Computer Misuse Act 1990. If this key cannot be found on your death then the cryptocurrency and its value will be lost.
It is also important to let your adviser know what you want to happen to the cryptocurrency on your death i.e. this could be liquidated, held in trust or distributed.
How can I make sure my cryptocurrency is not overlooked on death?
There are a number of ways that you can make sure that cryptocurrency is accessible after your death. Make sure all usernames, passwords, private and public keys are stored using a reputable password manager. The master password may then be stored with your will together with other estate planning documents, if the firm taking your instructions agrees to this or alternatively you may wish to entrust the master password with a specially chosen digital asset executor who is appointed in your Will. Make sure that your executors know that they are appointed and where your will is held so that they can obtain a copy when the time comes.
Make sure that the above is maintained when there are changes, together with an updated list of all digital assets.
Store and manage your crypto assets using a digital wallet. There is no physical wallet. Various exchanges have death management processes that allow Personal Representative(s) to gain access to your assets on death. One such exchange is Coinbase, which is a digital wallet, where in the event that you inherit or become the owner of a member’s Coinbase account, they have created a process to transfer the assets in the easiest possible way. They provide details of how they can be contacted and typically they will ask for a death certificate, a copy of the will and the grant of representation and identification for the Personal Representative(s) then accompanied by a letter of authority signed by the Personal Representative(s) instructing Coinbase what to do with the Coinbase account.
Do I have to pay tax on my cryptocurrency on death?
Cryptocurrency is subject to inheritance tax on death. It is recommended to speak to a Solicitor who can advise you further.
Cryptocurrency is also subject to income tax, capital gains tax and pooled gains.
This article states our understanding of crypto assets as at August 2023.