Unless you have been living under a rock, it is difficult to have missed the explosion of cryptocurrency into the public consciousness over the last five years, transforming from a fringe idea on the edges of financial relevance, to what some sources say is a $91.43bn market in Australia alone.
As cryptocurrency has stormed into the holdings of an increasingly large number of Australians it has naturally demanded the question, how is cryptocurrency treated under the Law when the holder dies?
Yes, it can be included
Cryptocurrency is property: In Australia, cryptocurrency is treated as a form of property. It can be owned, transferred, gifted and inherited. There is no legal barrier to leaving digital assets in a Will.
What makes cryptocurrency different from a bank account or a share portfolio is not its legal status, but how it is held, accessed and transferred.
Issues to be aware of
There are three main issues for the consideration of any person who is considering or already has included cryptocurrency in their Will.
- The technical problem: Cryptocurrencies are technically involved assets and therefore require a baseline technical competency to be able to deal with. The issue that has inevitably arisen is where the executor of the Deceased’s estate lacks the technical competence to be able to deal with the asset effectively in their capacity as executor.
- The jurisdictional problem: Cryptocurrency can easily be, and often is, held on international exchanges or private wallets, which invariably lead to difficult questions of legal jurisdiction. This problem can be particularly challenging in circumstances where an executor is attempting to establish their authority to deal with the assets.
- The access problem: Traditional financial assets are held by institutions, banks, brokers, and superannuation funds, each of which have processes for dealing with deceased estates. A death certificate, a grant of probate, and a formal request will, in most cases, unlock access.
Cryptocurrency is different. It is typically held in a digital wallet, secured by a private key, a long string of characters that functions as both the password and the proof of ownership. Without the private key, the assets are effectively inaccessible. Permanently. There is no bank to call. There is no customer service process. There is no court order that can recover a private key that has not been recorded anywhere.
This means that failing to make adequate provision for the transmission of access information is not a legal problem, it is a practical one that results in assets simply disappearing from the estate.
Best practice for including Cryptocurrency in a Will
To avoid the issues mentioned, you should consider employing the following strategies when including Cryptocurrency in a Will.
Record the existence of the assets
Your Will or a separate memorandum should identify that cryptocurrency holdings exist, the platforms or wallets used, and how to locate the relevant information. The Will itself should not contain private keys because Wills become public documents on probate;
Secure storage of access information
Private keys, seed phrases and wallet passwords need to be stored securely and in a way that your executor can access after your death. Options include a fireproof safe, a secure document vault with a law firm, or a reputable digital estate planning service. Hardware wallets should be stored with instructions for use;
Consider the executor’s technical capability
Administering cryptocurrency requires a level of technical familiarity. If your executor is unlikely to have that capability, consider whether a professional executor or a technically capable co-executor should be appointed, or whether specific directions should be included about who should assist;
Superannuation and exchange-held crypto
Cryptocurrency held on a centralised exchange (such as Coinbase or independent Australian exchanges) may be treated differently from self-custodied assets, as the exchange holds the underlying keys. Review the platform’s policies on deceased estates; and
Tax considerations
In Australia, cryptocurrency is subject to capital gains tax. Transferring digital assets as part of an estate can trigger CGT events, and the cost base calculations can be complex where assets were acquired over time at different prices. Executors and beneficiaries should obtain specialist tax advice before transacting with inherited cryptocurrency.
A new asset class, not a new problem
Whilst a novel asset class, the challenges associated with including cryptocurrency in a Will are not new, being the same challenges that apply to any asset, in making sure they are found, accessed, and transferred appropriately.
However, what is different, is that the margin for error with cryptocurrency is smaller, and the consequences of getting wrong are often irreversible.
At Solomon Hollett Lawyers, we help clients think through the full picture of their estate, including digital assets, to ensure that nothing is left to chance and that every legacy has a clear course to follow.
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