How to pass on your cryptocurrency when you die

The average crypto investor probably doesn’t plan to die of old age anytime soon, but that doesn’t mean they shouldn’t have a plan in place to pass on their cryptocurrency in case they meet an unlikely death, lawyers warn.

Speaking to Cointelegraph, Irina Heaver, a Dubai-based cryptocurrency lawyer, believes that “billions” of Bitcoin (BTC) have been lost due to a lack of proper death-related planning by hodlers.

He noted that many families were unable to access cryptographic assets of loved ones due to private keys taken to the grave, and stressed the importance of discussing cryptographic assets with the family and including them in their will.

Heaver said the typical cryptocurrency investor is a “male millennial” between the ages of 27 and 42, which is the age group where arranging one’s financial affairs in the event of death is the “last thing” that comes up in conversation.

However, the attorney believes it is “essential” to confirm that the administrator of one’s will is proficient in the use of cold and hot wallets to properly distribute one’s holdings.

Digital assets lawyer Liam Hennessy, a partner at Australian law firm Gadens, believes cryptocurrency investors should know that the “critical first step” to safeguarding their families’ future is preparing a will, but they should also be aware that Cryptocurrencies are a complicated asset and that will have to include really specific instructions on where the crypto is and how the keys are accessed.

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Heaver has observed “huge problems” in the cryptocurrency inheritance process, including one case where a family approached her for help accessing the crypto assets of a deceased loved one.

Digital asset attorney Krish Gosai, managing partner of Gosai Law, believes it is especially important to educate beneficiaries about cryptocurrencies due to the lack of understanding of digital assets.

Gosai believes it is important to inform the executor or loved ones of the existence of cryptographic assets, but advised against sharing sensitive login information or seed phrases, saying it is unnecessary.

He suggested that, if needed, the seed phrase could be split between four family members.

Tax implications

Cryptocurrency inheritance can also be complex due to differences in tax structures between jurisdictions.

Heaver added that there are estate taxes in some jurisdictions. For example, in the UK, cryptocurrencies will be “subject” to inheritance tax on the death of the holder and capital gains tax on a valid disposal.

Related: Answering a morbid question: What happens to your Bitcoin when you die?

There is no inheritance tax in Australia, but Heaver noted that there is capital gains tax if you have inherited property from a deceased estate.

He noted that then there are jurisdictions where there are no taxes, such as the United Arab Emirates.

Digital assets lawyer Liam Hennessy, a partner at Gadens, added that getting digital assets at the best price can be another complication, due to factors such as price fluctuations and smart execution protocols.