What happens to cryptocurrency when I die?

What is cryptocurrency?

A cryptocurrency is a type of currency that uses digital files as money. It can be used as a form of payment that can be exchanged online for goods and services.

Cryptocurrencies work using a technology called blockchain, which is a decentralised technology spread across many computers that manages and records transactions. This means that they aren’t controlled by one person or government.

What are public and private keys?

Part of the appeal of this technology is its security. Usually, the files are created using the same methods as cryptography (the science of hiding information).

Take bitcoin as an example. Bitcoins are stored in a virtual wallet, and this virtual wallet has two keys — a public key and a private key. The public key is just a string of characters and is visible to anyone as an address for sending and receiving cryptocurrency, whereas the private key is what allows the owner to access the wallet’s contents.

What happens to cryptocurrency on death or incapacity?

In very simple terms:

• Cryptoassets will pass in accordance with the deceased’s Will, or in accordance with the intestacy rules if the deceased does not have a Will
• Cryptoassets will form part of the taxable estate of the deceased and are subject to inheritance tax if domiciled in the United Kingdom
• Cryptoassets can be held in a trust, for example in a trust set up for the benefit of children or grandchildren
• If mental capacity is lost, an attorney acting under a registered lasting power of attorney for property and financial affairs would be able to make decisions in relation to the cryptoassets but in so doing may be in breach of the terms of use of the crypto exchange in which the cryptoassets are held by accessing the asset (see below).

How do I find out if someone owned cryptocurrency on death or incapacity?

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 crypto 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.

The real difficulty is in knowing how to leave a private key behind without undermining the security of the investment. The law in the UK has not helped in this respect as it has failed to keep up with the latest technological advances, especially in the world of cryptocurrencies.

If a deceased’s wallet was managed by a third party such as a crypto exchange, particularly one in a foreign jurisdiction, access will be governed by the terms of use of the exchange and non-account holders.

This can result in an attorney or personal representative of the deceased being unable to log in and deal with the cryptocurrency without breaching the provider’s terms of use.

Accessing someone else’s account without specific authority also arguably breaches section 1 of the Computer Misuse Act 1990 and may also breach various Computer Fraud and Abuse Acts in the United States or other local laws, depending on the jurisdiction which governs the account in question.

What practical steps can be taken?

There are some practical steps that can be taken to make sure that valuable crypto assets are not lost after death.

• Make sure that clear instructions are given to the person who you wish to have access to your crypto assets after your death or on incapacity.
• You could leave written instructions for safekeeping but there is no guarantee that this will be accessible in the future. You could store it on a memory stick, or somewhere on your computer, but again, you’ll need to ensure that somebody has access to these, and any relevant passwords.
• Alternatively, you may wish to consider virtual storage facilities in which you can store things such as passwords and access codes, even photos, family recipes etc. With such a system, you only need one set of login details to access all the information required to deal with your digital legacy.
• Create 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 missed
• If you do own cryptocurrency then make sure your advisors are aware of this when you prepare your Will. The Will itself should not include an inventory of the cryptoassets but the Will or an accompanying letter of wishes could include instructions to the executors on how an individual would like their digital estate to be administered.
• Make sure that you have a lasting power of attorney in place in the event of loss of mental capacity. If you have cryptocurrency, consider including explicit authority for the attorney to deal with any crypto assets in the lasting power of attorney itself.
• It is important for your executors and/or attorneys to understand the importance of your cryptoassets and also to note that the value of cryptocurrency as at the date of your death will be liable to inheritance tax on your death.