According to a recent study by the Law Society, 93 per cent of people who have a Will have not included any form of cryptoasset within it.
This is despite more than 6.2 per cent of UK adults holding some form of cryptoasset in the UK, equating to more than 4.2 million people, according to data from crypto-payment specialists Triple A.
The possession and transfer of crypto assets can be complex, due to the protections put in place through complicated encryption and transparency over who possesses what within the market.
Nevertheless, executors and personal representatives (PRs) handling a person’s estate during the probate process must identify, value and distribute either cryptoassets themselves or wealth generated from their sale to beneficiaries.
Wills and digital inventories
Like any asset, cryptocurrencies and NFTs can be passed to beneficiaries within a Will. Although these parts of an estate are not tangible like a property or high-value item, they can still be transferred or sold to benefit those inheriting from an estate.
To make this process simpler, those leaving cryptoassets should consider creating a digital inventory, where clear instructions on how to access cryptocurrency wallets and NFTs can be left but remain secure.
This inventory should include:
- How to access their private key and their cryptowallet
- The types of cryptoassets held
- Any other information required to identify or access their digital assets, such as details of crypto exchanges or digital custodians.
This must be kept up to date regularly so that executors and PRs can quickly handle the assets of an estate.
If no Will or a clear digital inventory exists, then executors and PRs will have to try and identify and gain access to these assets via other means.
Can you discover cryptoassets in an estate?
Some estimates suggest that around 20 per cent of the 18.5 million Bitcoin in existence have been ‘lost’, either through the careless actions of their owners or where a person has died without informing their loved ones.
While individuals should provide this information in a will or digital inventory, many don’t. This can make it hard for executors and PRs to identify potential cryptoassets.
Where the deceased has not left a digital inventory or instructions in a Will but indicated that they held cryptoassets, it might be possible for PRs or executors to instruct an expert to review the deceased’s computing devices for account details or wallets.
Beyond this, identifying cryptoassets can be extremely challenging for those managing a deceased estate.
How to take possession of cryptoassets
Once executors or PRs have all of the information regarding how to identify and access a deceased’s cryptoasset then they can take possession.
Where the deceased was using a third-party provider to hold the cryptocurrency, such as a broker, custodian or exchange, they will typically request a death certificate and grant of probate before a PR or executor can gain access to the deceased’s account.
Once this access is granted, it is recommended that the cryptoassets are transferred to a new digital wallet or custodian, so that the executor or PR has control and a new private key.
This will prevent other individuals, who may have had access to the deceased’s private key, from accessing and transferring them.
Care should be taken when storing this new digital key and information to ensure it doesn’t fall into the wrong hands, as they remain responsible for these assets until the estate is fully distributed.
Tax on cryptoassets in an estate
HM Revenue & Customs (HMRC) has confirmed that cryptoassets are considered part of an estate for Inheritance Tax (IHT) purposes.
This affects all individuals who are resident in the UK or who benefit from a UK estate, even if beneficiaries aren’t resident at that time.
This means IHT is due on cryptoassets similar to how other assets in an estate are treated. Any tax issue must be settled before a grant of probate can be obtained by an executor or PR.
The tax rules surrounding cryptoassets are complex and so it is best to seek advice beforehand if you are managing the probate process.
