Are you leaving cryptocurrencies in your will?

22 August 2023

According to the Financial Conduct Authority (FCA) about 10% of people in the UK own some form of cryptocurrency – with ownership doubling between 2021 and 2022.

It is also estimated that cryptocurrency users and investors have a combined wealth of more than £3 billion – and this number is projected to continue growing.

But what happens to this digital currency when you die? And can be people contest this element of your estate?

There are a few things to consider.

What is cryptocurrency?

Cryptocurrency exists in digital form only and, unlike traditional currencies of pounds, dollars and euros, are not backed by national governments.

There are more than 29,000 types of cryptocurrencies across the world, but the most well-known is Bitcoin. Other popular types are Litecoin, Dogecoin and Ethereum.

This digital asset is supported by blockchain, a technology that is used as a public ledger and cannot be changed.

All types of cryptocurrency are stored in a virtual wallet, but this wallet only holds the “digital keys” that are needed to access the actual digital currency and provide digital signatures that authorise each transaction. Cryptocurrency remains in the ledger within the blockchain.

This means your cryptocurrency is only as safe as the wallet you keep it in – so cybersecurity is a priority.

How is cryptocurrency classified in law?

In 2019, the UK Jurisdiction Taskforce ruled that existing common law could recognise digital assets such as cryptocurrency and in 2022, published a public consultation on the issuance and transfer of digital securities under English private law.

In June 2023, the Law Commission of England and Wales recommended new legislation to deal with these digital assets. It called for the creation of a “third category of thing”. This is because such digital assets cannot be classed as a “chose in possession”, defined as tangible property, such as personal effects and cars that are transferred by assignment or by manual delivery.

Neither can they be classed as a “chose in action”, which are intangible assets such as holdings in companies, copyright and insurance policies.

The Law Commission argued that a new legal category of personal property should be formally recognised to deal with intangible cryptocurrencies.

Leaving cryptocurrency in a will

Digital assets can be left in a will, gifted or inherited, like any other asset such as property and money.

However, there are crucial differences compared to leaving traditional financial assets that are held by a bank or building society.

Because there is no responsible organisation that can provide access to cryptocurrency, the owner must leave an up-to-date digital inventory that contains clear instructions to the executor and / or beneficiaries on how to access the digital key for the virtual wallet.

If the digital key code cannot be found, it is highly likely that the beneficiaries will lose access to the money. The fact that the level of security surrounding the virtual wallets is so high – and that the entire process is decentralised – means there is no way for a third party to get to it.

According to guidance published by the Government:

If a private key is lost, the tokens will continue to exist at the public address. However, the ‘owner’ would be unable to undertake any transactions in respect of those tokens. If private key details were kept only on a computer which was subsequently destroyed, then the tokens would be unreachable, although they would continue to exist.

Remember wills, once a grant of probate is obtained, are available for anyone to read. Therefore, never leave specific instructions on how to access the private key in your will.

Access to your virtual wallet

Every crypto key has a private key and a public key.

The public key is similar to a bank account number and can be shared, while the private one must be kept secret.

The three main types of crypto wallets are hot wallets, cold wallets and hosted wallets.

  • Hot wallets connect to the internet and the private keys are stored and encrypted. While generally safe, if there is strong encryption, they could be targeted by hackers.
  • Cold wallets are kept offline and can be simply a piece of paper on which the private key code is written on. Some people use bank vaults to keep their details in.
  • Hosted wallets are third parties that hold the private key securely. The main benefit of a hosted wallet is that you do not lose your digital currency if you forget or mislay your password.

It is also possible to use a hardware wallet, which is a USB stick or a computer that does not access the internet.

Whichever route you go down, make sure all the information remains secure.

Power of attorney

It might be advisable to set up a Lasting Power of Attorney that includes explicit instructions on how to deal with cryptocurrency and other digital assets should the owner lose mental capacity.

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