Scotland has its own digital currency (the Scotcoin – which was launched back in 2013), and given the increasing awareness and use of Cryptocurrency, it is important for investors to know what would happen to their Cryptocurrency when they die.
What is Cryptocurrency?
Cryptocurrency has been defined as a digital currency where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Cryptocurrency operates independently of central banks, the system allows payments to be made between users without the need for an institution such as a bank to issue or transfer the currency. They run on a ledger called a ‘blockchain’.
What is Bitcoin?
Just one of the many cryptocurrencies available, Bitcoin was the first Cryptocurrency and is possibly the most widely known. Bitcoins come in the form of computer code, used to link the user to the particular digital token. Whilst there is no institution involved in making or transferring the currency, the user can store the currency in their own virtual wallet on a Bitcoin exchange. The wallet is accessed by means of a private bitcoin “key”.
What are the laws surrounding Inheritance of Cryptocurrency?
There are no specific laws which directly address the issue of the inheritance of Cryptocurrency. However, there are some practical steps which you should take. For instance, make sure that the person who has been appointed to administer your estate (your executor) is aware that you are a member of a Cryptocurrency service. Otherwise, there is a chance that your virtual wallet could be missed as an asset of your estate. Whilst it is not encouraged to write down keys, as this information should be kept secure, and you may not wish to make your executor aware of your key for your Cryptocurrency wallet during your lifetime, you may consider placing a note of it with your Will? A developing area in the US are commercial services for the secure storage of your ‘keys’. Exchanges may have policies and procedures in place to deal with the death of an investor and you should check these during your lifetime to make sure you are aware as to what will happen to your virtual wallet on your death.
Cryptocurrency and Inheritance Tax
As with any asset, your Cryptocurrency wallet could be subject to Inheritance tax (IHT). Whilst Cryptocurrency and the world of digital currency is still evolving, the value of your digital wallet is an asset and thus part of your estate on your death. On their website Scotcoin confirm that you can leave your Cryptocurrency in your Will but advise that you will need to make sure your beneficiaries have access to your pass phrases at the appropriate time. Lose the pass phrase and you potentially lose the wallet and its contents. There is no reset.
If you die and no one is aware of your ‘wallet’ or they know of the wallet but do not know the ‘key’ your executors, and ultimately your heirs, may never gain access to the contents of the wallet. Their only recourse would be to the exchange and its particular policies and procedures. The value of your wallet will form part of your estate and thus be potentially liable to Inheritance Tax.
Should you require any further information on Wills or Executries, please contact any member of the Private Client team on 03330 430150. Our Private Client team are always able to advise you on matters such as your Will and Estate Planning and your families and executors on any executry administration aspects.