Crypto Currency and Estate Planning

Crypto currency poses a unique challenge for estate planning. It is an asset that is often overlooked by will-makers. Given the decentralised nature of its storage, it can also be irretrievable by those few Executors that actually know it exists.

It is important that your intended successors know about your crypto and have a mechanism to access it after your death, even if you are just experimenting. With the inherent volatility of the crypto market, a small sum could become your biggest investment overnight.

Ways that crypto is stored

Crypto can be stored in multiple ways:

Centralised Exchanges (such as Coinbase, Kiwi-Coin, CryptoTrader etc.):

• These are platforms where crypto is traded. Centralised Exchanges are generally logged into with a username and password, secured by a two-step verification process. Account holders with digital wallets do not hold the private keys; the platform owner will. The downside is that the crypto is connected to the internet and susceptible to hackers (for instance, Cryptopia was hacked in January 2019 and lost over $30M worth of its customers’ investments).
• Crypto stored in centralised exchanges will usually be retrievable if details are not left by the will-maker but will require proof of probate to gain access from the provider.

Crypto Wallets with Private Keys (“Hot Wallets”):

• Hot Wallets are typically used for long-term storage of crypto and are unhosted (not on the platform of a third-party).
• Hot Wallets are accessed using a private key (or a 12–24-word alphanumeric ‘seed phrase’). Whoever has the private key or the seed phrase can access the crypto.

Hardware or Paper Wallets:

These are a form of cold storage, in the sense that they are completely disconnected from the internet.

• Hardware Wallets are protected by a private key and are a USB-esque style of storage.
• Paper wallets can be created by printing the crypto directly to paper.

Crypto Wallets and Hardware/Paper Wallets cannot be accessed by anyone who does not have access to the private key or seed phrase. Therefore, to be inheritable, someone other than the will-maker must be capable of attaining access to the crypto. In order to do this, they must know the crypto exists, know where to find it and have the exact private key sequence.

How do I ensure my estate planning will deal with my crypto?

Create a Record of your Crypto:

Compile a list of your crypto, where it is stored and any usernames, passwords, private keys or other details (such as login details for the platform used as part of any two-step authentication) for your Executors. Make sure to create and store this offline.

It may be prudent to provide a paper copy of this to be stored with your Will or provide information of some sort to your Executors of where the record can be found.   If your Executors cannot access your crypto, they cannot transfer it to any of your intended beneficiaries.

Once this record is established, it is essential to frequently update it as your crypto collection changes.

Think About Access Hurdles your Executor May Face:

Consider any possible hurdles your Executor may face in accessing the crypto, particularly in regard to two-step authentication and third-party holder rules of access.

Selecting Executor(s):

The qualities one might look for in a traditional Executor may not translate well when it comes to navigating the complexities and novelty of digital assets. A will-maker with crypto should ensure at least one of their chosen Executors has a degree of familiarity with crypto and other digital assets.

Decide on Beneficiaries:

Review your Will (or create a Will if you do not have one) and consider if you would like to specifically gift any of your crypto. Any crypto not assigned to a specific beneficiary will fall into your residue and be distributed in accordance with the residue clause of your Will.

What about a trust?

If it was ever in doubt, the High Court of New Zealand in Ruscoe v Cryptopia Ltd (in Liquidation) [2020] NZHC 728 made it clear that crypto is property capable of being held on trust. With a robust approach to trust administration, and a detailed Memorandum of Wishes, you can ensure the crypto investments are well managed and the necessary passwords and private keys are properly and securely stored with trust information. Other benefits also include:

• The ability to appoint a replacement trustee, should you lose capacity or die, to administer your crypto and other assets.
• The option to appoint a special trust advisor to advise on matters of crypto investment, and
• Avoiding the lengthy process of probate, which could expose high value crypto to the risks of market volatility.

However, in using this method of estate planning it is important to consider the need for accountability to beneficiaries and consider if any modifications to the trustee’s default statutory duties (e.g. the duty to invest prudently) are necessary or desirable. It is also important to be aware that with trusts, beneficiaries have certain rights to disclosure of trust information. Although this would not extend to disclosure of private keys or passcodes, it may cover details about the value of the crypto investment and their method of storage.

If you have any questions, please contact us.