In 2019, Canadian crypto exchange QuadrigaCX made headlines worldwide. The founder died suddenly and had sole access to the private keys of wallets in which for some $190 million in cryptocurrency stood. Because he had not shared that information with anyone, customers and employees could no longer access their balances. An exceptional example, but one from which you can learn something. Even if you only own a modest amount in crypto yourself, it’s good to pause and consider the question: what happens to your crypto if you die?
Crypto in your estate
Just like a house or savings account, cryptocurrency falls under your estate. That means your heirs have a right to your digital assets. But that right is only worth something if they can access it.
And therein lies exactly the problem: access to your wallet is gained, for example, with the seed phrase – a string of 12 or 24 words that stores the data needed to access or recover your crypto on blockchains or cryptowallets. Without those words, your heirs have no way to access your coins securely. Another option is to store the digital assets on a hardware wallet that you manage yourself. As a result, any next of kin do not need the full seed phrase, only the access code that allows them to make transactions from that device.
How do you make sure your heirs can access your digital estate – in this case, your crypto currency?
Of course, you don’t want your crypto to just get lost. But how do you arrange that properly? A few options:
- Include the seed phrase in your will? Rather not. A will is not always confidential after death: it is difficult to control who all gets to see it. In addition, due to the speed of developments in the crypto market, it is conceivable that before your death, your seed phrase may have become obsolete because you have switched to a more modern blockchain or other crypto in the meantime.
- Entrusting the seed phrase to someone? You might consider giving (part of) the seed phrase in advance to a trusted person or executor. But that requires that you trust that person completely – even in the long run.
- On deposit with a notary public: A much safer option is to deposit the seed phrase or other access information with a notary public. The notary establishes a deed of deposit and registers it with the Central Register of Wills (CTR). That way, your heirs will know where to go, without you having to share sensitive information even in life.
A combination is also possible: for example, half the seed phrase in your will, the other half with the notary, executor, or the vault of a bank.
Do you have your coins through a broker? Then the transfer is often simpler. They sell the balance and deposit the proceeds into the linked bank account. However, your heir often has to provide a certificate of inheritance.
Don’t forget the inheritance tax on crypto!
Inheritance tax must also be paid on crypto. How much that is depends on:
- The value of the inheritance at the time of death
- the relationship of the heir to you (e.g. child, partner, friend)
So the value of your crypto is determined on the date of death, and can vary considerably due to price fluctuations.
Want advice on how to safely manage your digital legacy? Then get in touch with Kimberly Rozema, Kim van der Bijl or one of our other inheritance lawspecialists. We will be happy to help you!
