Chances are you've heard about cryptocurrency; you might even own some already. Or perhaps you're wondering what all the fuss is about and considering purchasing some yourself as an investment. Plenty of people will offer you advice on what to buy, when is the best time to buy it, and how to maximise your chances of making money from it but once purchased, how is it dealt with post death? Can cryptocurrency be passed to your beneficiaries?
What is cryptocurrency?
Cryptocurrency is a digital currency that does not physically exist as a coin or note, but rather a digital token. Understanding how cryptocurrency functions as an asset informs how we deal with it in your estate planning.
The concept can be complicated but for our purposes, whilst cryptocurrency can be used like regular currency to make payments, it is not treated like regular currency as an asset. Instead it's more like shares.
You hold a certain amount and the value can fluctuate over time although, whilst you can exchange cryptocurrency for regular currency, unlike shares you can also exchange it for other assets or another cryptocurrency.
How can I own cryptocurrency?
Cryptocurrency can be purchased from Cryptocurrency Exchanges of which the asset is then stored in a digital cryptocurrency wallet.
Typically, cryptocurrency that is purchased through a Cryptocurrency Exchange will be stored through cloud-based software and accessed via the internet. This means that anyone with the requisite security information can access this cryptocurrency.
As an alternative, as cryptocurrency exists as a digital token, it is possible to store your cryptocurrency on computer hardware instead of cloud-based software. This requires anyone accessing this cryptocurrency to have physical possession of the computer hardware on which it is stored, in addition to the requisite security information.
There are many different types of cryptocurrency wallets available, each with their own advantages and disadvantages. The most important thing for estate planning purposes is that you know what type of cryptocurrency wallet you have, and the requirements to access the wallet.
Can I leave cryptocurrency in my Will?
Although cryptocurrency is treated differently to regular currency, it is nonetheless recognised as an asset and therefore capable of being gifted in a Will.
It may form a specific gift to a beneficiary or beneficiaries, or it may be dealt with as part of the residue of the whole Estate.
The most important thing is to ensure that the Executor is aware of the existence of the cryptocurrency and is provided with sufficient information to be able to access it. You must ensure you keep detailed records of what cryptocurrency you hold, the type of wallet in which it is held, and how to access that specific wallet including any security information. We do not recommend including this information in your Will as, once Probate has been granted, this is a public document.
As the very nature of cryptocurrency is rapidly evolving, it is also important to ensure your Will remains up to date in respect of your cryptocurrency holdings. If you are gifting specific cryptocurrency to a specific beneficiary, make sure you keep this gift updated based on what cryptocurrency you have, and remember that cryptocurrency rapidly fluctuates in value which could have a substantial impact on the size of the gift being provided.
There may also be tax implications to consider when including cryptocurrency in your estate planning. Anyone who is involved in the acquiring or disposing of cryptocurrency is subject to varied tax consequences depending upon their circumstances and this may include any beneficiaries who obtain cryptocurrency through a Will. We recommend that, in addition to legal advice about your estate planning, you obtain financial advice in this regard.
At Burke Lawyers, we are seeing more clients acquiring these assets and incorporating them into their estate planning. For more information, or to make an appointment to discuss your estate planning in more detail contact us today on +61 3 9822 8588 or email HERE.
