Cryptoassets and your Will

Cryptoassets and cryptocurrencies have become an increasingly popular form of investment and it is essential that specific estate planning steps are taken to ensure that they are passed on safely and not lost.  We have all heard the story of Mr Howell who for over 12 years fought for permission to search a land fill site for a lost hard drive, accidentally thrown away, containing the details of 8,000 bitcoins worth in excess of £500million.  Currently he has been denied permission.

There are many challenging aspects to this form of investment when it comes to estate administration. 

Identifying the assets

The first and foremost problem is identifying the asset.  It is estimated that around 20% of all Bitcoins are ‘missing’ in that they can no longer be identified online and therefore it is vital that the details of any such assets are securely recorded as part of estate planning. This should include:

• giving the executors permission to access the assets and explaining how to do this. This could be done in a letter of wishes addressed to the executors. 
• keeping a log of passwords for laptops and computers, usernames for online accounts, seed phrases and both the public and private passkeys for the cryptocurrency accounts. It is better not to include this information in the suggested letter of wishes due to the highly sensitive nature of such information and perhaps the details could be recorded in a secure format such as USB stick and stored safely in a safety deposit box for example.
• making reference to cryptoassets in the Will itself.  It is important to remember however, that a Will becomes a public document once probate has been applied for, so it is vital that none of the access information is included in the Will itself.

It is also important to keep the details under review particularly as the way in which such assets are held may change over time.

Given the nature of such assets, it may be wise to have separate executors who have an understanding of the world of cryptoassets so they can manage such assets. Alternatively, the letter of wishes could include the contact details for such individuals who will be able to assist the executors.

Take control of the assets

Once the assets have been identified using the addresses seed phrases or pass keys, the personal representatives can claim the assets and administer such according to the terms of the Will.  It is not always necessary to wait for a grant of probate to be issued, it will all depend on how the assets were initially acquired.

If the assets were acquired through a third party provider it is likely the provider will insist on a death certificate and a grant of probate to allow the personal representatives to access the account.

The best approach once the assets have been accessed is for the personal representatives to open a new account with a new private key and transfer the assets across.  This ensures that only the personal representatives will be able to access the investment. 

In order to protect themselves as personal representatives it is wise to seek assurance that the deceased did in fact own the assets by identifying the purchase. 

Administering the assets

As with all other estate assets, once the personal representatives have identified and claimed the assets, they can distribute them or sell them in the usual way.  It is essential however, with substantial holdings that advice is sort from an expert as to the best way to proceed both in terms of selling or transferring the large sums involved. It is also worth noting that there is no central body that oversees transactions and often there is very little in the way of authority needed to proceed other than taking possession. 

Taxation

It is important to understand that whilst personal representatives can often manage cryptocurrency in a more informal manner, often being able to do so without a grant of probate, the assets do still form part of the estate and will be subject to tax including both inheritance tax and capital gains tax.  HMRC have recently written to estate practitioners to remind them of the need to include the value of cryptoassets and cryptocurrency when reporting an estate. It is also worth mentioning that HMRC do have the ability to track cryptocurrency transactions.

Cryptoassets are often held overseas but as with all other assets, a UK resident is taxed on their worldwide assets and not just those located in England and Wales.  This means that the value of all cryptocurrencies must be included in an estate and inheritance tax paid before the grant of probate can be issued.  One of the problems with cryptocurrency is the fluctuations in the value.  The relevant date for inheritance tax is of course the date of death but due to the high levels of volatility in the markets this could be very different even a week later. If the result of this volatility is the assets fall in value, the estate may be able to claim loss relief but this is not automatic.  Any significant gain in value will result in a charge to capital gains tax.

It is important to note that if the executors cannot access the accounts because the testator did not leave detailed instructions on how to do so the wealth they hold is lost but the estate may still be taxed on the value, if HMRC have evidence the accounts exist.

In conclusion

Cryptocurrencies are becoming increasingly popular with an estimated 12% of the population holding some form of cryptoasset.  It is important therefore that executors are given sufficient information to prevent the loss of the asset and to ensure the asset is passed to the beneficiaries.

Please call 01543 420 000 and ask for the Private Client Team, or email Catherine Elliott celliott@keelys.co.uk