A Practical Guide to Including Cryptocurrency in Your Will

KEY TAKE OUTS

• Cryptocurrency is a digital asset that can be included in your estate.
• Leaving clear instructions to your executor and beneficiaries is essential.
• The most common issue with cryptocurrency is lack of access.

As digital assets like cryptocurrency become more common, it’s important to consider how they fit into your estate planning and how they will pass to another person on your death.

Unlike traditional tangible assets like property and bank accounts, cryptocurrencies pose unique challenges due to their digital nature and decentralised storage.

This guide will explore what you need to know to effectively include cryptocurrency in your Will, covering key considerations for storage, accessibility, legal implications, and tax obligations in New South Wales (NSW).

Understanding Cryptocurrency as an Asset

Cryptocurrency is a type of virtual or digital currency that operates on a decentralised platform called a blockchain. Popular cryptocurrencies such as Bitcoin, Ethereum, and numerous others are managed through cryptographic keys, with ownership verified on the blockchain. While these assets don’t have a physical form, they are recognised as property and can be included in a Will like other assets.

However, due to the way they are stored and accessed; typically requiring private keys and passwords; ownership verification and transfer can be especially complicated. Given the potential value of cryptocurrency holdings, it is essential to make deliberate and well considered arrangements for them in your overall estate planning.

The Importance of Including Cryptocurrency in Your Estate Plan

Cryptocurrency cannot be easily traced through traditional financial institutions, meaning that if it isn’t specifically listed or made accessible with your Will, your beneficiaries may not even be unaware of its existence. Further, without access to the private keys needed to unlock the digital wallet, any cryptocurrency in your estate could be lost permanently.

In 2017, a blockchain analysis company Chainalysis reported that approximately 3.79 million Bitcoins, equating to around $30 billion USD, have been lost due to deceased estates and insufficient planning. Addressing these issues early on can prevent your digital wealth from being inaccessible to your loved ones.

Key Steps for Including Cryptocurrency in Your Will

1. Listing Your Cryptocurrency Assets
   Cryptocurrencies should be explicitly listed or mentioned somewhere and be easy to find, if not specifically listed in your Will. Without being specified, they may fall into the residual category of your estate, which includes all assets not specifically distributed to a beneficiary. Listing each cryptocurrency by type and amount can aid in smooth distribution and make it easier for your executor to identify and manage these assets.
2. Storage of Private Keys and Access Information
   One of the main challenges with cryptocurrency inheritance is the need for secure but accessible storage of private keys and wallet information. Private keys are essentially the password to access and control your digital assets. Considerations include:
   • Hardware Wallets: These are physical devices, such as USBs, that store cryptocurrency offline. Ensure your executor knows where to locate the device and has the necessary PIN or passphrase to access it.
   • Paper Wallets: A paper wallet involves printing your private keys and wallet addresses on paper. It’s secure if stored properly, but your executor will need detailed instructions on how to retrieve the asset.
   • Online Wallets or Exchange Accounts: These accounts are accessible via the internet and may include login credentials, multi-factor authentication, and other security steps. Documenting these details separately from your will and informing your executor where to find them is essential.
3. Securing Private Key Information
   To avoid making your cryptocurrency vulnerable to theft, do not include your private keys directly in your Will, as Wills become public documents once probate is granted. Instead, store this information in a secure location, such as with a trusted solicitor or in a digital vault, and provide instructions to your executor on how to retrieve it.
   Digital assets, especially cryptocurrencies, are subject to strict privacy and security standards. Unauthorised access to a deceased person’s accounts may violate privacy laws or platform terms of service agreements. Executors should be prepared to demonstrate their legal right to access these assets, and it’s wise to check platform policies regarding access after death, as some may require specific documentation or legal processes.
4. Selecting a Suitable Executor
   Administering an estate with cryptocurrency requires a degree of technical proficiency, so choosing an executor who understands digital assets or is willing to work with experts is advisable. Consider appointing a tech-savvy co-executor or professional advisor if necessary.

What are the Tax Implications for inheriting Cryptocurrency in NSW

Australia’s tax rules treat cryptocurrency as an asset subject to capital gains tax (CGT), similar to real estate or share portfolios. When a beneficiary disposes of inherited cryptocurrency, they may incur CGT, calculated based on the difference between the acquisition cost and the later sale price.

It’s essential to keep detailed records of your cryptocurrency purchases, including the date and amount, as these will be required for future tax calculations. Beneficiaries should consult a tax professional specialising in cryptocurrency to ensure compliance and to minimize their tax liabilities when inheriting digital assets.

Staying Up to Date: Reviewing and Updating Your Estate Plan

Cryptocurrency and related laws are rapidly evolving, so it’s important to revisit your estate plan regularly to ensure it remains accurate and effective. The dynamic nature of cryptocurrency values, security protocols, and regulatory requirements mean that periodic reviews with a legal advisor experienced in digital assets are a good practice. Ensure your executor and beneficiaries stay informed of any changes to your digital holdings and how they will be managed.

CONCLUSION

Including cryptocurrency in your Will requires proactive planning and specialised knowledge, from secure storage solutions to selecting an executor with technical expertise.

By documenting your assets, safeguarding access, and staying informed of tax and legal requirements, you can protect your digital assets and ensure they reach your intended beneficiaries. As the cryptocurrency landscape continues to evolve, consulting with experienced legal and financial professionals will help you create a thorough and resilient estate plan for your cryptocurrency assets.