The digital era has brought along with it varied legal implications for estate planning. With the creation of newer and broader classifications of assets, legal definitions and interpretations have to adapt to new terminology as well as understanding. Today, digital art merits inclusion in estate planning as much as cryptocurrencies like Bitcoin do.
Cryptocurrency is a decentralised digital asset and was created without any government regulations in place, which is an alluring concept and a major aspect of its USP. Cryptocurrency is 100% risk and 100% profit. No pain without gain, right? However, what does all this mean for your estate planning?
Let’s explore how crypto wallets affect your estate planning and the things you may have to bear in mind when navigating this new space.
1. Understanding Digital Assets
Digital assets, unlike physical assets, have electronic storage but are just as easily owned, sold, or transferred. Even photographs and documents are considered to be digital assets.
Cryptocurrencies like Ethereum or Bitcoin are also part of digital assets. Because cryptocurrency is largely unregulated, it is important to include it in estate planning. If done correctly, you could transfer your crypto assets to your beneficiaries. If you do not include it in estate planning, you could lose your whole crypto investment.
The new Digital Assets Property Bill (September 2024) proposes crypto to be included in the purview of personal property. It will be taxed on capital gains or income tax as it applies. It is important to stay updated on its provisions and what it may mean for your crypto assets in the future, including your estate planning.
2. The Role of Wills in Digital Estate Planning
Needless to say, the role of wills in your digital estate planning is of tantamount importance. In traditional estate planning, where only physical assets were present, things may have been pretty straightforward. But with a digital estate and cryptocurrency in the mix, you need to carefully consider everything thoroughly and make detailed provisions.
Since cryptocurrency centres mainly around its accessibility, it is vital to list your crypto assets with relevant information like keys, passwords, IDs, names of exchanges, etc. Losing this information means your beneficiary could risk losing access to your crypto assets and their value.
It is therefore important to choose the right type of will to protect your beneficiaries from potential risks and probate. A property protection will that acts like a trust can be an excellent option. You could also consider granting a trusted family member or beneficiary a lasting power of attorney (LPA).
In both cases, a major factor that needs bearing in mind is that your chosen executor, be it a family member or a solicitor, must be well-versed in the nuances of crypto-management & digital assets.
3. Using Letter of Wishes
Since registered wills that have representation are accessible to the public, it is wise to not include crucial cryptocurrency-related information like passkeys, IDs, etc. in the will itself. A ‘Letter of Wishes’ can be used as a supplement to your will to include sensitive cryptocurrency information.
Your ‘Letter of Wishes’ though not legally enforceable, is a confidential document. This means that unless otherwise stated, your beneficiaries cannot view it. Your executor alone will access this to execute the contents of the will as per your instructions and wishes. This lends added protection and avoids potential asset loss and dispute.
4. Consulting the Experts
Navigating the digital asset space is tricky as legal definitions and provisions keep changing. While you can stay updated by reading up, it can be overwhelming to manage a relatively new asset class. There’s no harm in calling the experts when you feel confused or find it challenging to draw up a will that includes digital assets like cryptocurrency.
Attorneys & solicitors have recognised the growing relevance of cryptocurrency. While only 7% of wills have included crypto-assets, this trend is expected to see an upward shift with the introduction of the digital assets bill. When in doubt, call a legal expert to answer all your queries. This will help you plan your estate and secure your crypto assets better.
Conclusion
The laws related to digital assets like cryptocurrency are still evolving and are in their infancy. This makes their ownership and transfer a difficult process in the absence of unambiguous legal documents. There are various legal options to consider when including them in your estate planning – be it a trust, a will, or a combination of wills supplemented by a ‘Letter of wishes’.
Without a digital estate plan in place, your beneficiaries could lose access to your crypto assets and their rising market value. It is important to stay updated on current legal provisions for cryptocurrency and other digital assets while including them in your estate planning.
“Crypto wallets can complicate estate planning due to the digital nature of cryptocurrencies and the need for specific knowledge to access them. Without proper documentation or a plan for passing on access, assets in crypto wallets could be lost or inaccessible. It’s essential to include crypto assets in a comprehensive estate plan, ensuring that beneficiaries have the necessary keys and instructions to manage these digital assets.”