Doing well in the crypto-currency market? Make sure you don’t die rich!

17 April 2019

Whether you are in the market for short term profit or making long term investments, adequate planning is certainly a worthwhile (and small) investment of your time and money. If you’ve been savvy enough to successfully invest in crypto-assets, make sure you are smart enough to ensure your loved ones can benefit, should the worst happen.

A couple of high profile stories have recently hit the press which remind people what can happen in a crypto environment when disaster planning keeps getting bumped down the agenda: Matthew Mellon who died suddenly, taking with him an estimated $500m in Ripple (no one knows where or how to access this); and Gerald Cotten (the founder of Canadian exchange QuadrigaCX) who died suddenly aged 30. The exchange kept 90% of their $190m fund in cold storage and he was the only person who could access it (creditors are still unable to access the funds).

Whilst these high profile examples are helping to provoke some thought about this little considered area, the issue has always been present (an estimated 25% of bitcoins have already been lost forever). The crypto market is very young and so far, has failed to adapt to address the simple fact that a crypto-asset’s main attraction — its impenetrable privacy from regulation — can also become its fatal weakness.

Can I leave my bitcoin fortune in my Will?

The short (and easy) answer is yes. It is now quite clear that crypto-currency is an “asset” for the purposes of inheritance and succession planning (although, predictably, crypto-assets are very much liable to inheritance tax). Even if you don’t create a Will, the normal intestacy rules apply to crypto-assets, just as they do to any other asset.

Sorted then? Unfortunately not. Crypto-assets present the quite obvious and rather large practical difficulty of passing on account and digital wallet accessibility details to your proposed beneficiary. Not easy when investors are, rightly, uneasy about writing down their password / PIN / key.

How can I securely pass on keys / passwords?

If you are fortunate enough to feel comfortable in passing on account details and passwords to a trusted one (or more) then this could work for you. Your Will and Letter of Wishes can then be used to instruct those people on what to with the assets and how to do it.

However, this is an unrealistic (and not entirely risk-free) solution for most. Whilst this area is still very much in its infancy, there are a handful of sensible steps that crypto-asset investors would be wise to take in order to prevent putting their loved ones through what has become known as the “double funeral” dilemma (mourning the loss of a loved one whilst coming to terms with the loss of an irretrievable fortune that might have been).

  1. Leave physical devices (e.g. phones  and hard drives) necessary to access your crypto assets in your Will to your executors. The executors will be tasked with executing your Will and Letter of Wishes. If you keep these devices hidden, include instructions on where to find them as set out in below.
  1. It is paramount not to leave sensitive information in your Will. As the Will progresses through the probate process, it will become public record. Instead, a good option is to annex information you don’t want to become public in a separate Letter of Wishes. A Letter of Wishes also has the advantage of allowing amends to be made quickly and easily (allowing it to be updated as your crypto-asset base expands). This letter will, of course, need to include all of the details necessary to access your crypto assets; including all of your usernames, passwords, PINs, and keys, and how to access your 2FA codes. As such it is vital that this document is held securely. It is typical to place this in a sealed envelope in some form of secure storage (for example, in your solicitor’s safe or in a safety deposit box at your normal bank) which can then be opened on your death. Importantly, make sure your executors know where this letter is stored.  
  1. A final (and relatively new) option is to use “digital inheritance” services (for example, Digipulse) who market themselves as digital and crypto asset management platforms – these are effectively online vaults. Should this option be preferable, your Will and Letter of Wishes can be used to instruct the recipient of the vault contents with what to do and how to do it. Having said that, it remains to be seen how secure and / or effective these new and unregulated companies will turn out to be.

Don’t forget to provide instructions for your crypto-illiterate loved ones!

Do not overlook the fact that your executors / beneficiaries may have absolutely no knowledge of crypto currencies. Therefore, it is recommended that you write a “dummies” step by step guide to accessing each form of crypto asset. This should be as detailed as possible; from accessing the funds on your hardware wallet, to sending them to an exchange, trading them into fiat, and finally transferring them to your linked bank account. These instructions will be best left in a Letter of Wishes and securely stored as outlined in above.

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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