Existential dread and a world in chaos has many of us planning for a future we may not see. Here’s how to secure your digital assets in the event of your death.
2020 has been a tough year for many. Between pandemics, plagues of locusts, riots, aliens, and just about everything else one could rightfully imagine- this year has a lot of people planning for the worst. Which arguably isn’t a bad thing.
However, plans can start to get a bit complicated if you’re holding digital assets. Which may put off more than a few people from creating the structure they need. Especially if you’re a new trader, you may just be starting to wrap your head around what trading looks like, let alone the complicated process of allocating your coins. Platforms like Bitvavo, or other newbie focused exchanges can help walk you through investments- but who do you turn to for advice on what to do with crypto when you’re dead?
We might be able to help.
What Happens to Bitcoin When You Die
What happens, or can happen to bitcoin when you die varies depending on a number of different factors. As with most things, how you handle preparations for your death will have the largest influence on what happens to any of your assets, post- mortem. Things like wills, advanced directives, and binding contracts regarding asset allocation have arguably the greatest impact on what direction your bitcoin takes.
However, depending on local and national laws and regulations regarding bitcoin- things may get a bit sticky if you’re planning on willing a digital currency as an inheritance. Certain countries, like the US and UK, have staunchly set rules in place, lining out how exactly bitcoin and other cryptocurrencies can be willed or how they may be taxed should your bitcoin become a type of inheritance. Where in others, bitcoin trading is prohibited altogether, so dealing in cryptocurrency- let alone willing it, becomes a near-impossible feat.
If you decide not to take any steps, and continue to keep your bitcoin anonymous (or pseudo-anonymous) then they could realistically be lost forever, right alongside you. In the event that your coins aren’t willed, and you have no one in your life that is aware of your personal keys, or any backups to your wallets that you may have made- those coins will be lost As it’s impossible for this type of information to be recovered or recreated. Living bitcoin traders have learned this the hard way, as an estimated 20% of all bitcoins have already been lost forever and are completely unrecoverable.
Best Ways to Pass on Your Bitcoin After You’re Dead
Should you not want your current investments to become part of further inflating that 20%, you may want to devise a better plan now. Whether that means speaking directly to a lawyer or solicitor that specializes in inheritance laws or legally binding wills or using some more modern tech to keep things out of the legal eye and pass on your assets to loved ones outside of the authoritarian eye.
Blockchain Trust Technology
There are a few novel approaches to this incredibly relevant problem- of which most are all powered by the same principles and logic that is behind bitcoin and cryptocurrencies, to begin with: blockchain. Using blockchain technology, decentralized applications (dApps), and smart contracts, a few different platforms are offering investors a way to pass on assets after they themselves have passed.
By using protocols that mimic things like trusts, escrows, and shared distribution keys, these applications call on the powers of publicly distributed ledgers to store and verify the desires of the investment holder. Should the parent investor die, the beneficiaries then provide proof of death to the trusted platform, and IFTTT protocol ensures that the identified beneficiaries are provided with the keys necessary to access the accounts.
There are a number of these types of trust systems available currently, and no doubt another batch soon to be on the horizon. Each with their own unique way of helping you to handle your investments, both during life and after it.
Paper and Hardware Wallets
If you prefer to stray a bit further from the radar, there is always the option of passing on a hardware or paper wallet backup. Essentially turning over your public and private keys to the beneficiary of your choosing. While this route does provide an easy- and lawyer free- way of passing on your coins after you’ve died, there is a chance it could backfire. Particularly in countries that would view this as an inheritance.
In the US, legal considerations like the Computer Fraud and Abuse Act, and the Stored Communications Act prohibit anyone from accessing a private online account unless a beneficiary has been expressly named. In the UK, the HMRC (Her Majesty’s Revenue & Customs) are creating guidelines that will require Capital Gains Tax and Inheritance Tax on cryptocurrencies and assets, meaning that should you be found using someone else’s wallet without express permission, mandatory reporting, or tax liability- you could face serious fines or even jail time.
Making the personal handoff of bitcoin and cryptocurrencies a bit sketchy. However, the ability to enforce these legal restrictions is unclear, it’s always wise to tread with caution. Specifically, as cryptocurrencies continue to gain traction and widespread acceptance, all but forcing governmental agencies to take careful note of what is happening within these spheres.