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Bitcoin Inheritance: What Happens to Your Crypto When You Die?

Gaining a crypto inheritance could mean you're up for a tax bill. | Source: Shutterstock
Gaining a crypto inheritance could mean you're up for a tax bill. | Source: Shutterstock

By CCN.com: Simon Goldring, a lawyer, and partner at British firm McDermott Will & Emery, wrote a piece in The National Law Review this week talking about the function of cryptocurrencies as an inheritance. Not a crypto expert, the lawyer still provides some sage advice on how to transfer crypto assets after you’ve died.

British Inheritance Laws Apply to Crypto

Most notably, he points out that, in Britain at least, inherited cryptocurrency is taxable. This means that if your relatives receive crypto from you as part of an inheritance, they’re liable for the value of it in the form of a tax bill. Down the road, if crypto reaches its expected heights, this could be very problematic.

There are some creative solutions which might involve some form of wash trading that could lessen the penalties your relatives will pay, but ultimately, the lesson is that if you hold crypto, like any other asset, the government is going to get its bite out of it post-mortem. Privacy coins would seem to present a viable way to thwart as much, but ultimately it’s on the individual to decide what the best course of action is. Goldring writes, in part:

“The best advice lies in the old adage, prevention is better than cure. It may be that a specific gift of the digital asset is contained within the Will itself or a Letter of Wishes is prepared, to sit alongside the Will, detailing instructions on how to access the funds or the private key itself. […] Inactivity can be a significant indicator of a change in circumstance. Certain platforms have made use of Application Programming Interface (API) integrations, which measure activity signals. Users are able to predefine a period of inactivity, e.g., three years, which on elapsing will trigger the transfer of digital assets to select beneficiaries.”

Hal Finney put the private keys to a sizable horde of Bitcoin in a safe deposit box, so that when he died his family could have them. He wrote of this, saying:

“Those discussions about inheriting your bitcoins are of more than academic interest. My bitcoins are stored in our safe deposit box, and my son and daughter are tech savvy. I think they’re safe enough. I’m comfortable with my legacy.”

What Are The Best Strategies for Passing on Cryptocurrency?

Using a hardware wallet or a paper wallet, or some other safer means to store a private key, you can ensure that family has access to it. There are probably legal strategies involving your relative “finding” the crypto among other items, or as part of taking possession of a computer, or something, which might help with the taxation question. Ultimately, though, every strategy will be unique to the user.

Read the full story on CCN.com.