Cryptoasset investors need to consider their Will and how to access wallets
With hundreds and thousands of people seeking strong returns from cryptoassets, a London and Birmingham-based law firm says it is essential that investors think about how they gift digital currencies in their Will.
Cryptoassets, like Bitcoin and Ethereum, form part of a person’s estate like any other assets, such as money, shares or property and can be left in a Will to beneficiaries.
Adam Hogg, Private Client Solicitor at Makrell.Solicitors said that it was important that investors regularly update and review their Wills to reflect their current position, especially given the volatility of the markets.
However, as importantly, says his colleague Thomas Hulme, who heads Mackrell.Solicitors’ Blockchain and Cryptoasset Team, is to ensure beneficiaries have the means to access cryptoassets after a person’s passing.
“With regular property or physical assets, it is quite easy to transfer these to another person, often by simply signing a piece of paper with a bank or transferring a deed,”
said Cryptoasset specialists Thomas.
“With digital currencies and other cryptoassets, like the newly emerging non-fungible tokens (NFTs), access isn’t possible without providing the ‘private key’ to a person’s crypto wallet.
“These keys should not be shared freely, as they could give a person access to assets while the person is still alive.”
Despite the challenges, Adam and Thomas say that investors and cryptoasset holders should take action sooner rather than later to protect their investment for beneficiaries, as millions of pounds worth of cryptoassets have already been lost forever because owners have died without leaving a contingency plan or appropriate Will.
Adam said that writing cryptoassets into a Will was the first important step, but developing a plan for the secure transfer or disposal of digital goods, was just as critical.
“The obvious choice would seem to leave details of a private key in a Will, but this is actively discouraged as Wills become a matter of public record once probate has been obtained.
“Including these details in a Will could, therefore, give the wrong people easy access to cryptoassets. Instead, some cryptocurrency users leave specific instructions on how to access the private keys in a separate document.
“However, again this often requires solicitors to act as a custodian of the assets until they are transferred or disposed of, which some solicitors may not be able to assist with.”
Instead, Adam said there are many solutions available to investors that have been designed specifically in mind to support the probate process.
These include dedicated cryptoasset inheritance solutions that allow investors to store their digital assets in a non-custodial multi-signature wallet, which allows two independent parties to come together to retrieve the funds on a beneficiary’s behalf.
Users of this type of solution can then include details of how to access funds within their Will or provide beneficiaries with the details separately.
Investors could also hold cryptocurrency on a hardware wallet in which they have stored a copy of the private keys for the wallet, added Thomas Hulme, although “if the wallet is lost or misplaced then the cryptoassets could be lost.”
Thomas explained that another option would be to use a cryptoasset bank that can manage the keys on a person’s behalf. These crypto asset custodians ensure that investors only have to leave details of the crypto bank and their account with a solicitor or loved ones.
Thomas said that investors should be aware that while some companies facilitate the acquisition of cryptoassets which can then be transferred to an external wallet, other companies sell contracts for cryptoassets and not actually the property themselves. In those situations, it is likely that the contract will need to be closed with the provider in order to access the cash.
“A final consideration given that many assets involve decentralised finance, is whether or not the cryptoasset is staked,”
“If it is then it is necessary to identify the systems which they are being staked and any contractual mechanisms that may be relevant.
“For example, some cryptoassets that can be staked have a mechanism whereas if you withdraw them from the staking system within a certain timeframe, a fee will be applied to the number of cryptoassets. This may well be that a greater value can be realised by leaving the cryptoassets in the staking system.”
Concluding, Adam Hogg added:
“The complexities of storing and passing on cryptoassets after one’s death shouldn’t be seen as a barrier to passing even small digital assets on to the next generation, especially given how much the value of certain currencies and NFTs have increased.
“Instead, investors should take time to put an effective plan in place, which ensures cryptoassets remain secure in their lifetime, but accessible after their death.”