One of the main attractions for people investing in crypto-currency has always been the extremely secure nature of the investments. While this can be reassuring for the investor, it can pose real problems for family members once the investor has died.
Crypto-currencies are incredibly secure, with multiple layers of security protecting digital currency wallets and investors often using pseudonyms to trade. Crypto-currencies are traded using a public key which allows others to send and receive payments. A private key is the investor’s access point to their digital wallet. Access to an investor’s digital wallet is usually via a series of unbreakable encrypted passwords. Without the private key, it is virtually impossible for the wallet to be accessed.
If the private key is lost, so too are the coins inside the digital wallet. And with the crypto-currency market set to hit a value of $1 trillion this year, beneficiaries could lose out if the details of crypto-currency holdings are not shared with those likely to deal with the estate upon death. It is estimated that at least $20 billion worth of Bitcoin alone has been lost due to investor negligence or the investor dying without sharing details of their investment. And with Bitcoin occupying just 34% of the crypto-currency market, there could be significantly more that has been lost. It is important for individuals to make their digital legacy known to those dealing with their estate.
The simplest way to ensure crypto-coins are not lost, is to keep the private key on a piece of paper that is stored alongside your Will. Passwords should not be recorded in Wills, as they are considered public documents in England and Wales. Including details of your digital assets in a separate document, ensures that your executors are aware of the asset, and are able to deal with the investment along with the rest of the estate.
An alternative is to use a third party commercial key management service. Essentially the digital version of a piece of paper in a vault, these services deal with generating, storing, destroying and replacing the crypto-keys used to access a digital wallet. This may be preferable if your executors are unlikely to recognize a private key to a digital wallet. The key management service would be able to share the information with executors and next of kin should the investor die without sharing details of their investment.
Whatever method you choose, it is important to consider how easy (or not) it will be for your executors to find and deal with your assets once you are no longer around to help.
One final point, while crypto-currency may be shrouded in mystery for many of us, HMRC are not mystified in the slightest. Crypto-currencies are assets which should be seriously considered as part of any estate planning exercise, and must be declared to HMRC as part of the probate process.
If you need any advice on estate planning, the preparation of your Will, or dealing with a loved one’s estate, please contact Taylor Walton LLP and we will be happy to help.