Crypto assets or digital assets traditionally included things like photographs or copyright on works of musical recordings. But our increasing use of electronic devices means the definition has become a lot wider. Today, it’s frequently seen to include everything from online betting accounts through to holdings of Bitcoin and other forms of electronic currency.
As the number of such assets has increased, so has the number of times clients ask us about how to handle them for estate planning purposes or in the event of a relationship breakdown.
In this article, we discuss the issues and some of the things you need to consider.
The first thing to say is that crypto assets have a tangible value. The value of the asset may depend on how lucky you are when it comes to gambling accounts but will also potentially be subject to market values in the case of Bitcoin (drawing a comparison with shares held on the stock market).
The value of these assets needs to be declared for inheritance tax purposes on death. It also needs to be considered in the distribution of assets in the event of relationship breakdown.
Advice for clients with crypto assets in estate planning
For the client, there is a need to balance data security against the needs of their executors. This is one of the reasons why it is so important to choose executors you trust.
Executors need to establish what an individual owned at the date of their death. If you have put in place a lasting power of attorney you attorney(s) may also need access to this information in order to help manage your financial affairs.
However, locating and accessing devices such as mobile phones or laptops, which may hold all of the information on crypto assets, can often be difficult. Then, fingerprint log-on and passwords, which are a common feature in today’s world, place another barrier.
Drafting your will and lasting powers of attorney with us allows us to record your digital footprint at that point in time. We can assist in working with you to find appropriate ways to ensure your passwords are protected but available for your attorneys and executors when required.
Advice for clients with crypto assets in relationship breakdown
First and foremost, crypto assets should be declared as part of your divorce proceedings. Documentary evidence must also be produced to confirm their value and comply with the ongoing duty of both parties to provide full and frank disclosure. This is usually done by completing a standard form issued by the court known as Form E. The value of the asset will then be taken into account when it comes to dividing the matrimonial pot.
If you suspect that your partner hasn’t disclosed details of their crypto assets, it is crucial that you discuss this with your lawyer as soon as you can. Further enquiries can then be made through questionnaires, essentially giving your partner a second chance to voluntarily produce the documentation, or the court can order that the information be disclosed. In more extreme scenarios, where there is a risk that one party may dissipate the asset, the court can make what’s known as a freezing order.
Having established the nature and extent of the crypto asset, it is a good idea to obtain expert evidence to help you (and the court) decide what it is worth. This can be particularly helpful and beneficial where the crypto asset is in the form of crypto currency, as this can be highly unpredictable and volatile.