Lost Keys, Lost Inheritance: The Crypto Crisis in Succession

While yes, your investments such as shares and cryptocurrency make up assets of your Estate, there are particular challenges with the digital currency that have serious consequences on your Estate Planning and Administration.

Cryptocurrency is considered, for all intents and purposes, property and therefore an asset of your Estate and can thus be gifted and dealt with like any other asset. However, the main issues arise when locating the crypto, accessing the wallet and selling/transferring the assets.

LOCATING CRYPTO

Because cryptocurrency is a digital currency that does not have a physical form, it can be hard for the Executor or Administrator of your Estate to locate your crypto after you pass away. Cryptocurrency is stored typically in one of three wallet types: software wallets, hardware wallets, and paper wallets. These wallets can also be custodial or non-custodial, basically meaning that either a third-party has control of the private key or the user has control of the private key. On the topic of keys, each wallet will have a public key and a private key – the private key being the most important to being able to access your crypto.

If you have lost, misplaced or otherwise cannot locate your private key information, your cryptocurrency is unrecoverable and can not be distributed in your Estate.

ACCESSING CRYPTO

If your cryptocurrency is stored in a hardware (USB, etc) or paper wallet, it is crucial that the physical wallet is located somewhere both KNOWN to your Executors and ACCESSIBLE to them at the time of your death. The private key will almost always be stored with the physical wallet itself. Being unable to access the wallet and key will mean that nobody will have access to the assets contained within it after you pass away, and your crypto will be lost forever.

Typically (and depending on each individual platform’s T&Cs), buying crypto through an app or web browser will mean that you have a custodial account where the platform will hold the private key encrypted in the platform. These wallets are always protected by passwords and 2FA measures to protect from hacking and theft and are also used to prove ownership of the wallet. Without these passwords to access the encrypted key, most platforms will not release the cryptocurrency to your Executors, and it will therefore be unrecoverable by your Estate.

While it is not advisable to include your passwords in your Will itself, we recommend noting these passwords in a memorandum to be stored with your Will.

SELLING AND TRANSFERRING CRYPTO

If your Executors or Administrators have managed to get access to your crypto wallet, there remains the issue of distribution.  Just like other investments, crypto can be sold or transferred. How the crypto is disposed of will have different consequences and implications.

Sold

If you have instructed in your Will for your crypto to be sold (or your Executors/Administrators have decided to sell), the main problem that will arise is the volatility of the market. Your Executors/Administrators have a duty to maximise the value of your Estate and can be liable in the event of a significant shortfall. Crypto markets are notoriously and especially unpredictable, with prices fluctuating in the tens of thousands over the course of hours or days – this makes obtaining a ‘market price’ extremely difficult. There may also be tax consequences of liquidating cryptocurrency.

Transferred

If you have instructed in your Will for your crypto to be transferred to a beneficiary, then you may run into issues if you have significant debts in your Estate. Crypto is not considered legal tender in Australia and most lending institutions (except perhaps specialised cryptocurrency financiers) won’t accept the blockchain as a source of payment for a debt. There may also be tax consequences for transferring cryptocurrency.

INTESTACY?

When you die without a Will or testamentary document, you are said to have died ‘intestate’. This means that your assets are subject to intestacy laws and only certain persons will receive the proceeds of your Estate.

Dying without a Will to provide instructions on how to deal with your cryptocurrency will create a significant roadblock in your Administrator’s ability to access your assets. Without a Will and/or other instructions on where to locate and how to access your cryptocurrency, your Administrators may not know if its existence and/or know how to locate/access it, meaning your crypto may never be recovered.

In the event your Administrators know where and how to access it, they will still need your security passwords and 2FA information (provided the wallet is a software wallet). In the absence of this information, they will not be able to gain access to your cryptocurrency.

Cryptocurrency is a relatively new and emerging area in Succession, and it is crucial to ensure that your Estate Planning adequately protects these assets.

If you require assistance, contact MMLaw today.

Shontai Day | Branding and Marketing Coordinator

MMLaw

The information in this document represents general information and should not be relied on for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact MMLaw.