In Part 1 of ‘Bitcoin After Death’ we discussed the ownership of cryptocurrencies and the challenges associated with leaving crypto assets to the next generation.
Unfortunately, there is no magic solution as the law in the UK has yet to catch up with the latest technological advances, especially in the world of cryptocurrencies. However, the following practical steps for clients and their advisers should help ensure that valuable crypto assets are not lost after death.
1. Identify crypto assets
Advisers should be asking clients at the outset to establish the extent of their estate held online, especially crypto assets with financial value such as Bitcoin. After death, it is extremely difficult to locate assets held purely online if the deceased’s personal representatives or advisers were not made aware of their existence. Due to the anonymous nature of cryptocurrencies, there is a risk that loved ones may never find them.
2. Create a digital inventory
The key practical advice for clients to make sure their digital life remains available to the next generation is to identify their online accounts and to leave a detailed inventory of all their online accounts. For clients with cryptocurrencies, this will need to include instructions how to access their private key in their cryptowallet – without this, cryptocurrency cannot be retrieved.
3. Ensure inventory is secure and up to date
However, to be effective, the inventory needs to be updated regularly and stored securely. It needs to include all passwords to access computing devices, all usernames for online accounts, and the public and private keys for cryptocurrency accounts.
Security of such an inventory is paramount. There are online password manager sites which can help. We would recommend storing an inventory with a Will held securely by the clients’ solicitor.
4. Wills and letters of wishes
Such an inventory should not be included in someone’s Will, which becomes a public document after death.
Similarly, advisers should recommend that a Lasting Power of Attorney is put in place in the event of loss of mental capacity. If the client has cryptocurrency, consider including explicit authority for the attorney to deal with any crypto assets (although, of course, the attorney would need access to the donor’s cryptowallet and private key to administer the assets).
5. Use of trusts
It is quite common for Will trusts to be set up on death (or in lifetime) as an estate planning tool. However, although blockchain technology seems here to stay, cryptocurrencies are yet to become a mainstream trust investment due to their volatility as well as reputational concerns.
Whether trustees, especially professional trustees, will be willing to administer trusts containing cryptocurrencies will depend on their attitude to risk. Trustees have duties to invest prudently and diversify their assets, making volatile cryptocurrencies a tricky asset to manage.
Blockchain is here to stay. Whether it becomes a more mainstream investment or not will depend, in large part, on how institutional investors adopt it. However, with more and more wealthy individuals and clients investing in cryptocurrencies globally, this complex area of estate planning will become more and more prevalent.
If you enjoyed reading this, do take a look at these articles also published this month:
If you require further information about anything covered in this briefing note, please contact Caroline Vollers, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2019