What is Bitcoin? Bitcoin and other cryptocurrencies are a virtual form of money.
In simple terms, it is an online version of cash, and you can use it to buy products and services which accept Bitcoin. There is no central bank or administrator, rather, Bitcoins are stored in a “digital wallet” application on a smartphone or computer.
If I own Bitcoin why can’t I just leave it in my Will?
Unlike a house or other tangible assets, given the virtual nature of cryptocurrency, it can potentially be kept completely hidden in a person’s digital wallet on their phone, USB thumb drive, computer hard drive or any other place that can store data. This means an Executor may not realise that they should check the digital wallet—and an Executor might not even know it exists if not brought to their attention. The digital wallet could be difficult to locate or access on the phone or other device belonging to the deceased.
An added complication with Bitcoin is that with cryptocurrencies there is no certificate of title, deed, or account statement to prove that a person owns the Bitcoin. The Bitcoin owner is assigned a “public key”, visible to anyone, as an address for sending and receiving the cryptocurrency. A separate “private key” allows the owner access to the wallet’s contents. If a Bitcoin owner dies without passing on the private key, then their Executor can never gain access.
What this means is, without this private key, the cryptocurrency can never be accessed and it dies with the deceased.
So if I own Bitcoin or cryptocurrency, what should I do?
We recommend that if you own cryptocurrency that you store your private key, password, details and instructions on how to access the wallet, alongside your Will (not within the actual content of the Will—but a separate document) so your Executor can deal with this asset. For example, you can keep a handwritten memorandum, including details of your digital wallet such as your public address and private key as well as any other instructions for accessing your cryptocurrency transaction records. This document could be kept in a sealed envelope with your Will in our safe custody system.
The information stored in your safe custody packet will not only be relevant when you die, but also if you become incapacitated and are unable to make decisions for yourself. If you have digital assets, you should account for them when preparing your Enduring Power of Attorney so that your attorney can access them and deal with them on your behalf.
Will your beneficiary have to pay CGT on the digital assets they inherit?
Inheriting Bitcoin is similar to inheriting shares, in that they are treated as an asset for income tax purposes and, therefore, may have Capital Gains Tax (CGT) implications if they are sold later on. In the same way as when you inherit shares (and haven’t sold them within the estate), you are not required to pay CGT at the time you inherit Bitcoin or other cryptocurrency. However, if you decide to sell them at a later time, you would be liable for CGT on any gains made since they were originally purchased. If you hold digital assets, which you would like to pass on to someone else after your death, you need to keep accurate records of your transactions so that your beneficiary, or Executor can complete tax returns.
What should you do?
Does your Will deal with your digital assets such as Bitcoin and cryptocurrencies? If it doesn’t, then it is time to consider an update or prepare a memorandum of wishes to better reflect your wishes. To discuss your estate planning, and how you can pass on your digital assets, get in touch with our Wills and Estate Planning Team.