Bitcoin, Ethereum and other crypto currencies have been exempt from value added tax since 2015 (European Court of Justice / ECJ). Crypto currencies therefore currently fall under their own asset class in an unregulated space.
Due to the secure and decentralised nature of crypto-currencies they do not provide any administrative or official ways in which they can be passed on to a next of kin.
Making plans for your Crypto currencies
It is important that if you have crypto currencies that you find a suitable way to pass on the keys / password for each currency you own. Crypto currency keys and passwords should not be included in your Last Will & Testament as this is a public document. By adding details of the currency you own with the relevant keys it is a huge security risk and could lead to theft.
Crypto currency wallets
Crypto currency wallets are a good way for those inheriting your crypto to manage your currencies. To pass on access you will again need to inform beneficiaries of the password for the wallet and if the account used two factor authentication via SMS change the phone number allocated to the account.
*In some circumstances it may be easier to:
- Convert your crypto currency into a traditional currency and pass it on to your next of kin. When this occurs inheritance tax will need to be paid on the amount gifted.
- Ask the beneficiary to setup their own wallet and transfer the currencies you own to them.
Will Crypto currency wallets help beneficiaries?
We have not carried out any extensive research into this area. We did however contact and provide a fake scenario to Coinbase last year. Coinbase are the most used Crypto currency wallet. Their policy and procedures surrounding inheritance however need to be addressed.
Coinbase do allow their users to assign administrative access to a next of kin. This is great if users know about this feature. All of the Coinbase users we interviewed were not aware of this feature.
In our testing we found that Coinbase will not pass on someones crypto currency to their next of kin if a separate letter has been forged (even if the chosen beneficiary has probate). This practice would be an illegal in the UK and many other countries they were holding on to a traditional currency (pound sterling, dollar etc). Unfortunately the asset class that crypto falls in allows for this loophole to be made available to crypto wallets. By not allowing users to inherit crypto currency following their the death of their users one of two things will happen:
- The Crypto will be left and lost
- Coinbase will inherit the Crypto previously owned by the deceased.
It is therefore very important for Coinbase users to provide Coinbase with a letter stating who you would like you currency to be passed onto. Once this letter has been sent a copy should be kept with you Last Will & Testament and other important documents.
*We have cross referenced the statement made by Coinbase stating that ‘legally, we can’t move forward without’ a separate letter. Both Gary Rycroft & Ian Bond cannot find any reasons why Coinbase are “legally” required not to pass on someones crypto currency to someone legally assigned as the beneficiary when a separate letter solely for Coinbase is not provided.