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What happens to your cryptocurrency stash when you die?

If you’ve amassed a large number of bitcoins and want to make sure they go to the right place when you pass on, you need to take some action now. (Getty)
If you’ve amassed a large number of bitcoins and want to make sure they go to the right place when you pass on, you need to take some action now. (Getty)

Without a will, every cryptocurrency stash becomes a ghost story.

Maybe you got in early on bitcoin or deciphered Ethereum while the world was still hung up on the meaning of blockchain. Sadly, without you, your crypto stash means nothing. It’s a lost soul adrift in the digital underworld, inaccessible.

Unless you had the foresight to pass it on.

Which is, in this brave new digital world, often not the case, says Lyndsay Reuvers-Hone, an associate at Miller Thomson whose practice includes estate litigation.

“At this age most (millennials) haven’t written wills, we don’t have estate plans so god forbid someone passes away and they have all this and haven’t actually drawn up a plan for it,” says Reuvers-Hone. It’s an untapped territory a lot of cryptocurrency investors haven’t thought about.

Reuvers-Hone, who’s researching the subject, shared some insight with the caveat that “cryptocurrency is obviously a developing area and is subject to change by leaps and bounds in the coming months and years.”

“(This) shouldn’t be considered legal advice – readers should consult their estate lawyer to determine the appropriate strategy for their circumstances,” she says.

The keys

Like the inner-workings of cryptocurrency itself, the process isn’t as easy as handing over your keys. Typically, cryptocurrency users have a public address and a private key which are used to send and receive coins or tokens. The public address is the deposit point but the users need the private key to withdraw the coins.

There are three main challenges with passing on cryptocurrency, says Reuvers-Hone. First, whoever is handling your estate needs to know it exists – an easy one if you’re reporting your gains on your taxes. Second is your estate trustee or representative need the authority to deal with your asset. And the third, is you need to enable the transfer to the beneficiary who you want to have the cryptocurrency.

Decrypting the process

Problems one and two – existence and authority – can be dealt with by putting a digital access clause in your last will and testament that grants the authority to access your crypto stash.

“Hypothetically you could put the private key in that but you’re running a huge risk,” she says. If a will is contested and goes to court it becomes a public document. “Then this private key that only you or your beneficiary is supposed to know is now out there for anybody who runs a search on your name.”

She says you could jot your key down on a piece of paper since it is basically just a set of numbers, letters, and symbols.

“The obvious problem is if someone is going through documents and they see a piece of paper with random letters and numbers written on it and don’t understand (cryptocurrency) they might just throw it away,” she says. You could always use a safety deposit box but there are better ways to ensure the transfer of your cryptocurrency after you die.

Cold storage and smart contracts

Cold storage – essentially a USB key that can hold your private keys – is a “relatively smooth” way to transfer the bulk of your cryptocurrency. It can be placed in a safety deposit box, included in your will and transferred when the estate trustee takes possessions of your assets.

However, what if you want to distribute your cryptocurrency wealth amongst several beneficiaries?

To do this, you could use a multi-signature transaction, also known as an M-of-N transaction – a form of smart contract (or computer protocol), says Reuvers-Hone. In an M-of-N transaction, M is a minimum number of digital signatures required and N is a list of signatories. On that list, you’d include yourself, your estate trustee and the intended beneficiaries.

“Once I’ve passed away, my estate trustee can send the transactions,” she says adding that you could include stipulations like “don’t give to Child B until they turn 21” and the estate trustee won’t sign the contract digitally until that child is 21.

The dead man’s switch

There’s also the dead man’s switch smart contract, says Reuvers-Hones adding that clearly someone had this conundrum in mind.

“It foregoes the need for the third party and the trustee and replaces them with a computer server,” she says. The computer server still needs two signatures – one from the beneficiary and one from the computer itself. Macabre as it sounds, the server will run periodic searches of deaths certificate databases looking for yours. It will also check in from time to time, prompting you to click a link and confirm that you are in fact still alive.

If it doesn’t get a response or it finds your death certificate, it signs the contract and the beneficiary has access to your crypto stash.

“The obvious benefit of that is you don’t have to worry about having a trustee who knows what they’re doing,” she says. “The risk is if you lock yourself out of your email account and the computer assumes you’ve died or if you become incompetent and don’t recognize the significance of the prompts.”

Reuvers-Hone admits that there’s a drawback to all the solutions but few compare to the drawback of dying without bequeathing your digital gold.

“If your private keys haven’t been passed on to someone in some form or another then the cryptocurrency ceases to be useful for anyone, it just dies with you.”

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