What is Bitcoin? Bitcoin and other cryptocurrencies are a virtual form of money.
In simple terms, it is an online version of cash, and you can use it to buy products and services which accept Bitcoin. There is no central bank or administrator, rather, Bitcoins are stored in a “digital wallet” application on a smartphone or computer.
What happens to my crypto if I die? If I own Bitcoin why can’t I just leave it in my Will?
Unlike a house or other tangible assets, given the virtual nature of cryptocurrency, it can potentially be kept completely hidden in a person’s digital wallet on their phone, USB thumb drive, computer hard drive or any other place that can store data. This means an Executor may not realise that they should check the digital wallet—and an Executor might not even know it exists if not brought to their attention. The digital wallet could be difficult to locate or access on the phone or other device belonging to the deceased.
An added complication with Bitcoin is that with cryptocurrencies there is no certificate of title, deed, or account statement to prove that a person owns the Bitcoin. The Bitcoin owner is assigned a “public key”, visible to anyone, as an address for sending and receiving the cryptocurrency. A separate “private key” allows the owner access to the wallet’s contents. If a Bitcoin owner dies without passing on the private key, then their Executor can never gain access.
What this means is, without this private key, the cryptocurrency can never be accessed and it dies with the deceased.
So if I own Bitcoin or cryptocurrency, what should I do?
We recommend that if you own cryptocurrency that you store your private key, password, details and instructions on how to access the wallet, alongside your Will (not within the actual content of the Will—but a separate document) so your Executor can deal with this asset. For example, you can keep a handwritten memorandum, including details of your digital wallet such as your public address and private key as well as any other instructions for accessing your cryptocurrency transaction records. This document could be kept in a sealed envelope with your Will in our safe custody system.
The information stored in your safe custody packet will not only be relevant when you die, but also if you become incapacitated and are unable to make decisions for yourself. If you have digital assets, you should account for them when preparing your Enduring Power of Attorney so that your attorney can access them and deal with them on your behalf.
Will your beneficiary have to pay CGT on the digital assets they inherit?
Inheriting Bitcoin is similar to inheriting shares, in that they are treated as an asset for income tax purposes and, therefore, may have Capital Gains Tax (CGT) implications if they are sold later on. In the same way as when you inherit shares (and haven’t sold them within the estate), you are not required to pay CGT at the time you inherit Bitcoin or other cryptocurrency. However, if you decide to sell them at a later time, you would be liable for CGT on any gains made since they were originally purchased. If you hold digital assets, which you would like to pass on to someone else after your death, you need to keep accurate records of your transactions so that your beneficiary, or Executor can complete tax returns.
What should you do?
Does your Will deal with your digital assets such as Bitcoin and cryptocurrencies? If it doesn’t, then it is time to consider an update or prepare a memorandum of wishes to better reflect your wishes. To discuss your estate planning, and how you can pass on your digital assets, get in touch with our Wills and Estate legal team.
Wills and Estate Team
estates@mvlawyers.com.au
(02) 9161 6782
FAQs
If a Bitcoin owner dies without passing on the private key, then their Executor can never gain access. What this means is, without this private key, the cryptocurrency can never be accessed and it dies with the deceased.
What happens to your crypto if you die? ›
How Is Cryptocurrency Treated in Estate Planning? Cryptocurrency is not treated as traditional money in terms of estate planning. Typically, you could have a beneficiary designation on a bank account or insurance policy, and upon your death, the assets go to your designated beneficiaries.
Does crypto have to go through probate? ›
Cryptocurrency in Probate
The answer lies in the probate process, which is the legal process of distributing a deceased person's assets. Cryptocurrency is treated like any other asset in probate, but there are some unique challenges that come with it.
What is the new law for crypto? ›
The Infrastructure Investment and Jobs Act, which passed Congress in November of 2021, included a provision amending the Tax Code to require anyone who receives $10,000 or more in cryptocurrency in the course of their trade or business to make a report to the IRS about that transaction.
What happens to my crypto on Coinbase if I die? ›
Coinbase currently does not support naming a beneficiary for individual accounts. Like most other assets in your estate, the ownership of your Coinbase account will be transferred according to your estate planning documents or state's intestate laws.
Can crypto be cashed out? ›
One of the easiest ways to cash out your cryptocurrency or Bitcoin is to use a centralized exchange such as Coinbase. Coinbase has an easy-to-use “buy/sell” button and you can choose which cryptocurrency you want to sell and the amount.
Can you lose all your money in crypto? ›
In recent years, crypto has been growing in popularity, with many people treating it as an investment opportunity. But remember, if you decide to invest in crypto then you should be prepared to lose all the money you have invested.
How do you pass crypto to heirs? ›
Name beneficiaries
One of the simplest, straightforward ways to leave Bitcoin to an heir is to name a beneficiary designation. Other similar categories include “transfer on death,” “pay on death” and “Totten Trust” designations. This means that you name a beneficiary directly with your cryptocurrency exchange.
How do you access crypto when someone dies? ›
Getting access to a crypto portfolio
The only funds you can access without a key are the ones your loved one has placed with a third-party exchange. The two most commonly used cryptocurrency exchanges are Coinbase and Gemini—both of which have a process in place for helping families who have lost loved ones.
Which of the following assets do not go through probate? ›
Protect your assets - update your estate plan today
Luckily, there are solutions. First and foremost, there are a number of asset types that typically do not pass through probate. This includes life insurance policies, bank accounts, and investment or retirement accounts that require you to name a beneficiary.
Federal law allows the Government to seize and retain – and then, ultimately, to sell with the proceeds going to Government coffers – “any property, real or personal, involved in a transaction or attempted transaction” that violates certain specified federal statutes.
What is the crypto law in 2024? ›
There are two landmark dates to note: June 30, 2024 when the legislation will become applicable in respect of asset-referenced tokens and e-money tokens, and December 30, 2024 when the remainder of the MiCA provisions will come into effect, including requirements for crypto asset service providers, together with the ...
What is the new IRS law for crypto? ›
The Infrastructure Investment and Jobs Act revised the rules that require taxpayers that are engaged in a trade or business to report receiving cash of more than $10,000 by considering digital assets to be cash. Announcement 2024-4PDF provides transitional guidance as Treasury and the IRS implement the new provisions.
Can I sue Coinbase for losing my money? ›
Coinbase's user agreement requires you to either pursue out-of-court relief through a process called arbitration or file your lawsuit in small claims court. Bringing legal action in either arbitration or court is an involved and complicated process.
How to protect and pass on your crypto after death? ›
How to leave cryptocurrency in your will. The first piece of your emergency plan should be a will and power of attorney documents. Most crypto exchanges and digital asset platforms require a copy of a will or POA document before they will confirm that your assets exist and allow your executor to access them.
What happens to my crypto if Coinbase goes bust? ›
Any cryptocurrencies you hold through an exchange or investment platform may not be protected in the event of bankruptcy. Those assets are first used to cover legal fees and creditor debts, delaying the timeframe within which the customer gets paid back (though payback isn't guaranteed).
How to access crypto when someone dies? ›
Getting access to a crypto portfolio
The only funds you can access without a key are the ones your loved one has placed with a third-party exchange. The two most commonly used cryptocurrency exchanges are Coinbase and Gemini—both of which have a process in place for helping families who have lost loved ones.
Can cryptocurrency be inherited? ›
Can cryptocurrencies be inherited? Cryptocurrencies are definitely a digital asset, and, as such, they can be inherited. If you've invested in crypto and would like to leave those assets to your loved ones, you absolutely can.
What happens to my crypto.com account if I die? ›
Like your real estate property and other possessions you own in your name, crypto is considered a probate asset. This means that it has to go through probate (the legal and court-driven process of distributing your estate) before it can be legally transferred to your beneficiaries after you die.
