Cryptocurrencies – such as Bitcoin – are becoming an increasingly common investment for many people. As a result, we’re starting to see a lot more people look for information about including cryptocurrency in their Wills.
As Wills and estate lawyers, we know how important it is to specifically include cryptocurrency in your Will. However, doing so requires more planning and thought than other traditional assets.
Here we explain a few key things to keep in mind when listing cryptocurrency in your Will.
What is cryptocurrency?
Cryptocurrency is a virtual currency that can be used as a method of exchange online. However, while it can be used for payment (like the Australian dollar) it's not recognised as a currency - but rather, as an asset.
This is an important distinction when it comes to your Will, as it means it is treated like any other asset of your estate.
Including cryptocurrency in your Will
It is important that you specifically list your cryptocurrency in your Will. If you don’t, it will fall into the ‘residue’ of your estate. ‘Residue’ is a catchall term for assets that are not specifically listed in your Will.
If cryptocurrency falls into the residue, then it can be difficult to identify, particularly if you don’t know where to look. Unlike traditional assets like shares or bank account, cryptocurrency does not leave an obvious paper trail. For that reason you should ensure your cryptocurrency is clearly identified.
But, there’s more to including your cryptocurrency than simply listing it as an asset. Cryptocurrencies are stored virtually on a "blockchain"; for example, Bitcoin is stored on the Bitcoin blockchain. To access this you need a unique, private key.
It’s crucial that the executor of your Will knows where to find this private key. Having this information will ensure they can easily access your cryptocurrency and distribute it, according to the terms in your Will.
Know the details of your cryptocurrency wallet
A cryptocurrency wallet, or crypto wallet, is used to store and protect your private key. There are various wallets available, however the most common are:
- Paper wallets. As its name suggests, this is a physical piece of paper that has a unique private key printed or written on it. It might also include the blockchain address. Paper wallets are less likely to be compromised because they can’t be accessed easily or remotely.
- Hardware wallets. This type of wallet is external hardware, such as a USB stick. Most hardware devices allow you to add extra security in the form of a PIN or password.
- Software wallets. The two most common types of software wallets are web and desktop. Web wallets are cloud-based programs that can be accessed from any device that connects to the internet. Desktop wallets are software that can be installed onto your personal computer. These wallets can only be accessed on the computer they’re installed on.
We don’t recommend that you write your private keys into your Will. That’s because your Will becomes a public document – accessible by anyone in the community – if and when probate is granted.
If anyone other than your executor was to access this information, there is a serious risk they could steal your cryptocurrency. We recommended that you discuss the storage and accessibility of your wallet with your Wills and Estate lawyer.
Understanding the tax implications on cryptocurrency
We often get asked whether someone can challenge a Will for a share in cryptocurrency. The short answer is yes, as long as the cryptocurrency is accessible.
Cryptocurrency is treated like any other estate asset. However, the executor may choose to liquidate the cryptocurrency and convert it into Australian Dollars before beginning negotiations. If the executor does this it’s important they are aware of the tax implications.
According to the Australian Tax Office, you may incur a capital gain tax when you dispose cryptocurrency. For that reason, it’s important that executors get tax advice from a specialised cryptocurrency accredited accountant.
Leaving cryptocurrency in your Will requires thorough planning and thought. If you take the right steps now, it will ensure that the beneficiaries of your estate can inherit your cryptocurrency assets easily, without any delays in the future.
If you have cryptocurrency and you would like more information about listing it in your Will, you can contact Maurice Blackburn today.