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How do I leave Bitcoin and Cryptocurrency in My Will?
AT some point we need to consider what’s going to happen to our possessions and assets when we die, and this includes your cryptoassets.
A growing number of people now own Bitcoin, cryptocurrency and NFTs and are rightly asking if and how they can pass on their crypto to their loved ones.
Here we explore how to leave your Bitcoin, Ethereum and other digital currencies in a way that’s secure and ensures they’re given to the right people, namely a Will.
Using a Will to pass on your Bitcoin and Cryptocurrency
A surprising number of people don’t have a Will, even though they’ve accumulated substantial assets.
This is especially true when you’re young, yet studies show that it’s younger people who are the most likely to hold crypto.
To state the obvious – not having a Will is mistake number one and can create a lot of problems for your loved ones if you were to die unexpectedly.
For example, in the UK, if you don’t have a valid Will when you pass away you’re considered to have died intestate by the Government.
This means your assets, including your cryptocurrency, may be divided up in a way that goes against your wishes, potentially creating financial complications for those you’ve left behind.
So the takeaway here is making sure you get a Will drawn up in good time just in case.
But you need to take certain precautions to keep your crypto safe.
Cryptocurrencies are digital tokens which have a value and act as a form of payment.
How to add Bitcoin and crypto to a Will
Your will is potentially a public document, depending on the value of your estate and whether probate is required, meaning you need to be cautious about what you include in it.
By all means give an overview of how your assets are to be distributed, but when it comes to your crypto things get a little more complicated.
Also, you should never include any specific information about how to access your crypto in your Will.
This includes:
- Private key
- Seed phrase / mnemonic
- Wallet passwords / usernames
The decentralised nature of crypto means that anyone with this information can potentially take charge of your cryptocurrency.
This is especially true if you’ve stored your digital tokens on a hardware wallet separate from a cryptocurrency exchange.
However, if you don’t pass on the information necessary to enable your loved ones to access your crypto, you assets could be lost forever.
How can my loved ones and beneficiaries access my Bitcoin?
One way of doing this is through a private letter of wishes. Within this you can include a guide to accessing your cryptocurrency.
This will never be a public document, but equally should be kept completely secure yet in a place that your beneficiaries (who you need to trust!) are aware of.
One of the problems that a people face when passing on their crypto is having someone who has the technical know-how to access it.
If your Bitcoin is held on a cryptocurrency exchange, things are a lot simpler for your beneficiaries and gaining access to your coins is done in a similar way as gaining access to a deceased person’s bank account.
In this case, you may need documents such as:
- A Death Certificate
- A copy of the Will
- Grant of Probate
But if you’re security conscious and you’ve moved your crypto from an exchange to a hardware wallet, or even multiple wallets, then it’s much harder for someone to access them if you haven’t shown them how.
Remember, if you don’t pass on your private key / seed phrase you coins are likely to be lost forever.
What to include in a letter of wishes
You need to create a step-by-step idiots guide about how to access your digital assets.
This needs to include the crucial access information detailed above, such as private keys and passwords, together with an easy to follow guide on how to use your hardware / paper wallet if you use one.
Make sure you list all your crypto holdings – you may use a combination of exchanges, decentralised wallet apps, and cold storage solutions for your portfolio.
In fact, if it’s possible, it’s a good idea to do a dummy run with your beneficiaries to ensure they’re familiar with the storage device.
Using cold storage devices and be fiddly so it’s important that the person administering your estate is familiar with how they work.
However, using a letter of wishes alongside your Will to pass on your cryptoassets ensure both the legal and technical sides are covered without compromising the security of your coins.
Using a managed crypto inheritance solution
There are a growing number of companies specialising in helping people ensure their cryptoassets are safely passed on to the right people when they die.
They often use a combination of cold storage, DeFi and cloud technology to securely store coins and create an inheritance plan in the event of your death.
While not cheap, these services reduce the risk of you losing your digital assets by offering a secure way for your loved ones to inherit your cryptoassets.
In addition to crypto, some of these services offer protection for your social media accounts, data such as pictures and documents and important passwords and passphrases.
Related post: A guide to managed crypto inheritance platforms
Do I have to pay Inheritance Tax (IHT) on my cryptocurrency and Bitcoin?
One thing to keep in mind during the estate planning process is the potential Inheritance Tax liability on your estate.
The value of your crypto at the time of your death needs to be taken into account alongside your traditional assets.
But there are many ways of legally reducing IHT, and in some cases you can avoid it altogether, which I’ve written about here.
However, to do this successfully you need to carefully plan your strategy years in advance.
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Disclaimer: Nothing on this website constitutes financial advice. The information provided is for educational purposes only.
