Accountant Mark Doyle isn't taking any chances in the event of his untimely demise. He has written out instructions for his wife on where to find his crypto and how to access it.
"If I didn't write it down and tell her, she wouldn't find it," says Doyle, a director with tax firm Doyle Keaney.
It’s a problem that has yet to have any real impact but, given the sharp increase in people converting their euro into bitcoin, litecoin, ethereum, ripple or stellar – to name just a few out of the many currencies out there – it’s likely to become an issue over time.
So the question is then, what happens to your crypto when you die?
Investing craze
There are no figures on how much Irish people have invested in such currencies – the Central Bank says it doesn't have any data on this – but despite the risks, it's clear that such investing continues to grow in popularity.
Last month, the Central Bank issued a warning that “crypto assets are highly risky and speculative and may not be suitable for retail customers”, amid aggressive marketing of such investments.
But despite the risks, demand is growing.
Last year, a survey from the Competition and Consumer Protection Commission (CCPC) found that as many as one in 10 investors hold crypto assets. And this proportion rises to as high as one in four among those aged 25-34.
Meanwhile, a survey from crypto exchange, Gemini, found that Irish people are the most "crypto curious" in the world followed by Germany, Colombia and the UK. The study also identified the average crypto investor in Ireland as a 36 year old who earns between €26,000 and €64,999 annually.
The Irish interest is part of a global phenomenon, which saw the wider cryptocurrency market estimated to be worth about $3 trillion (€2.77 trillion) last November.
But, while investing has undoubtedly become far more mainstream, talking about it is not quite there yet.
"People aren't saying a lot about it, they don't want to admit it in case it goes horribly wrong," says Susan Cosgrove, a solicitor with Cosgrove Gaynard.
This means that, unlike traditional investments, a significant amount of secrecy surrounds crypto investing, which can make it challenging in the event of an untimely death.
Legacy
Typically, when someone dies, an executor will take control of the assets under either the terms of the will, or an administrator under intestacy, and distribute them.
One of their first jobs is to gather details of assets and debts. With crypto, however, it’s an entirely different scenario, as no one might even realise that the deceased had crypto assets.
“There is a whole host of issues to do with the executor being aware of crypto [the deceased holds],” says Doyle. Firstly, many people simply won’t be aware that a person holds crypto – or the extent of their holdings.
“There is a big element of secrecy to it,” says Doyle. And even if they do know about it, do they know where it’s being held?
As Doyle notes, it’s not a case of just writing to a bank and asking if the deceased had any accounts with them; the myriad platforms that exist for holding crypto can make this virtually impossible.
Moreover, there is no central ownership register for crypto. Cryptocurrencies are decentralised, which means that they weren’t issued by a central bank or authority. This can make it impossible for a deceased person’s estate to access their holdings when they die.
When crypto is held on an exchange, there may be a method to contact the exchange and inform them of the death “just like you would with a bank”, says Cosgrove.
Coinbase, for example, says it has created a process to transfer the assets to someone who inherits or otherwise becomes the owner of a deceased family member’s Coinbase account “in the easiest manner possible”. Like a bank, it will look for a death certificate and a copy of a will, among other documents.
If the holdings are with a platform such as Revolut, then issues may not arise.
However, the challenge with crypto is that those with substantial holdings tend not to keep it on an exchange (if it’s connected to the internet, it’s known as “hot” storage) for fear of being hacked. Those “savvy enough”, says Cosgrove, tend to hold it in an offline code wallet known as “cold storage”.
Others might opt for a hardware wallet, which is storage that looks like a USB drive and can be stored in a vault.
But such funds can only be accessed with the right keys, which are strings of cryptographic characters.
So, even if a spouse or sibling knows their partner or brother/sister held crypto, it’s unlikely they will know where it is, what exchange it’s on, or if they have a password/platform key – or if it’s buried deep in their garden.
It’s an issue that may be exacerbated by the age of the “typical” Irish crypto investor, as defined by Gemini, a 36 year old; such a person may not be married or have a significant other to share the information with.
“You might know your sibling over Christmas dinner, but if something happens to that sibling, where do you turn to? How do you know what exchange they’ve used? Unless you find something written down, the keys and their details, you’re on a wild goose chase,” says Cosgrove.
Knowledge
As mentioned, many investors with considerable crypto assets will hold these in a virtual wallet, such as cold storage. These need a 12- or 24-word secret seed phrase, known as a “key”.
And the only way to access the asset is by knowing this key. While the obvious solution is to tell someone where their holdings are and how they can be accessed, the risk is that if you tell someone, it gives them the opportunity of accessing your assets.
Having a password to access a crypto account is the same as ownership. So, if you do tell someone about your holdings, you have to bear the risk that they might “rob” you of your assets.
“The exchange doesn’t know who’s logging on, so as long as you have your password and log-in you can get in,” says Doyle.
So what to do?
“Put it [the key] in a sealed envelope and put it with your will,” says Cosgrove, even though she acknowledges that placing it with your will “isn’t ideal” either. “It’s still written down,” she says, pointing to the potential for theft.
But she notes that if you’re not willing to tell someone where you have everything, “you need a plan B where someone is going to find these keys”.
If you are writing down such information, you might need to also consider including information on how the exchanges/storage options work, and how the assets can be turned back into euro, depending on the level of knowledge of your estate.
In time, a mechanism will likely be created to allow the transfer of such assets in the event of death, particularly as crypto takes steps towards regulation. As Cosgrove notes of exchanges, “even five, six years ago, [there] wasn’t a method to contact an exchange, that has evolved now”.
Inheritance tax
According to Doyle, crypto assets are treated the same as other assets when it comes to dealing with someone’s estate. “It’s not different to any other investment-type asset, and it will form part of the deceased person’s estate,” he says.
This means that, unless beneficiaries are covered by one of the capital acquisitions tax (CAT) thresholds, they will pay tax on their crypto inheritance at a rate of 33 per cent.
Of course, given the secrecy that surrounds crypto currencies, whether or not they’re disclosed as part of an estate may be unclear, but as with everything, there is a burden of responsibility on the taxpayer to do something within the law. And the executor or administrator has a duty to file a Statement of Affairs form, or an Inland Revenue Affidavit, outlining all the assets in the estate and their intended beneficiary for probate, so if crypto is a part of the estate, Revenue will likely know.
An issue can arise, however, with valuing the assets, given how much the value of crypto can fluctuate. While a spouse will inherit the assets tax free, if left to someone else, it could impact whether or not an inheritance will come in under the tax-free threshold or not. After all, one week bitcoin might be worth $40,000 and the next it may have slumped to $30,000.
This means that inheriting cyrpto could come with a nasty tax surprise.
Given the volatility of the asset, on the “valuation date” of someone’s estate, it might be valued at a significant value, thus potentially incurring CAT at a rate of 33 per cent.
By the time the person takes ownership of the assets however, and has the potential to sell them, the value may have plummeted.
