Simon Goldring, a partner at McDermott Will & Emery in the UK, wrote this week in the National Law Review to discuss how cryptocurrencies can be passed on as heritage. The lawyer is not a cryptocurrency expert, but he still offers some sensible advice on the transfer of ownership of encrypted assets.
UK Heritage Act applies to cryptocurrencies
Most notably, he pointed out that, at least in the UK, inheriting cryptocurrencies is subject to tax. This means that if your loved ones get the cryptocurrency from you in the form of inheritance, they will be obligated to pay taxes. In the future, if the price of cryptocurrencies continues to rise, this will be a very difficult problem.
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There are other options that may involve some form of dishwashing transaction that can reduce the tax burden to some extent. But the final thing to understand is that if you hold a cryptocurrency, like any other asset, the government will take a slice of it after you die. In this regard, the privacy currency seems to provide a viable tax avoidance method, but ultimately it is up to the individual to decide the best solution. Goldring wrote:
The best advice lies in the old saying: prevention is better than cure. The will may contain a specific gift for the digital asset, or a letter of intent to specify how to obtain the funds or private key… The inheritance of the cryptocurrency can also set specific conditions, such as setting a period of inactivity. Some platforms track the activity of a particular account through the API. The user can set an inactive period in advance, for example, the inactivity period is three years, so that the transfer of digital assets will be triggered after three years to select the beneficiary.
Well-known bitcoin pioneer Hal Finney puts a private key with a lot of bitcoin in a safe so that the family can own the private key after he dies. He wrote:
The discussion about inheriting bitcoin is not just about academic interest. My bitcoin is in our safe, and my son and daughter are tech savvy. I think these coins are safe enough. I am very happy with my heritage.
The best way to pass cryptocurrencies
Use a hardware wallet or paper wallet, or other safer method to store the private key, which ensures that the holder's family can get their cryptocurrency. There may be some legal strategies that involve your loved ones "discovering" cryptocurrencies in other items, or discovering that your computer has cryptocurrencies, which may help resolve tax issues. But in the end, different users should choose different strategies.
It is important to take precautions to avoid the inability to obtain cryptocurrencies when they are most needed. Whether it is in the will itself or as part of an additional will, the terms related to digital assets are becoming more and more popular. Although digital currency exchanges have begun to explore different blockchains to prevent token loss and ensure the smooth inheritance of the estate, the best strategy is to reduce risk, and token holders will take action from now on to ensure their Encrypted assets are given to the beneficiaries they have chosen.
Most of us live in the moment. But if we think Bitcoin will always be there, then there is reason to start preparing for the day after we leave, because the blockchain will continue to work. Future generations will be able to map out the time blocks of their birth and parental death, and so on. Just as Facebook has to find a way for family members to close the accounts of the deceased, bitcoin companies need to start developing solutions to the inheritance problem.