It’s not unexpected that managing a loved one’s digital assets after their passing is a duty that is becoming more and more prevalent as more and more areas of our life transfer to the digital realm. Due to its rising popularity, cryptocurrency is a digital asset that frequently makes news. Due to cryptocurrency’s early development (in the first decade of the twenty-first century), many people are still unfamiliar with it and may unintentionally skip the estate administration stage of dealing with cryptoassets.
What is cryptocurrency?
Cryptocurrency is digital money which uses encryption techniques to generate currency and verify the transfer of funds. It has been designed to be quicker, cheaper, and more reliable than our regular government-issued money, removing the middleman in all transactions. However, it’s important to note that there is currently no regulation for the ownership or transfer of cryptocurrency in the UK; therefore, many are still doubtful about using it.
There are various forms of cryptocurrency, including the likes of Bitcoin, Ripple, Ethereum, Litecoin, and Dogecoin. As of February 2022, Statista reported that there were 10,397 cryptocurrencies, which highlights the importance of ensuring cryptocurrencies are accounted for during estate planning and estate administration.
Currently, only one country in the world has adopted Bitcoin as an official currency. In September 2021, El Salvador adopted the cryptocurrency as an official currency alongside the US dollar. This was a controversial decision, with the International Monetary Fund (IMF) urging the country to reverse the decision and large-scale protests over the potential “instability and inflation”.
Can you inherit Bitcoin and other cryptocurrencies?
Yes, you can inherit Bitcoin and other cryptocurrencies upon death. A loved one can legally bequeath it to you in their estate plan like any other asset
Can cryptocurrency impact the amount of inheritance I receive?
Absolutely. Although the UK does not currently consider cryptocurrency as an official currency, HMRC’s Cryptoassets Manual states that “cryptoassets will be property for the purposes of Inheritance Tax”. Therefore, cryptocurrency needs to be seriously considered when written into Wills to avoid hefty Inheritance Tax bills. It’s worth noting that Inheritance Tax does not apply to all estates, as any part of an estate that passes to a spouse/civil partner or a charity is exempt from an Inheritance Tax liability
How can I establish if a deceased person had cryptocurrency?
As ownership is pseudonymous, there is no way of knowing when someone owns cryptocurrency in the same way that there is no way of knowing if someone has a bank account with a high street bank; you won’t know unless they tell you. To gain access to someone’s wallet, you will need to know the public and private keys. These keys are essentially the codes, or passwords, that log you into the virtual wallet to buy and sell the cryptocurrency from the exchange. Without this information, the cryptocurrency wealth is unreachable