The nascent cryptocurrency ecosystem is rife with questions.
The relatively complex nature of cryptocurrency and the developing technology that drives it has created an environment in which questions regarding their short term implications are focused on more heavily than long-term issues. One of the most pressing long-term questions regarding cryptocurrency is “what happens to my cryptocurrency in the event of my death?”
A young cryptocurrency investor died suddenly in Colorado early this year, passing on to his family the responsibility of managing his estate.
Unbeknownst to his family, the investor had been investing heavily in Bitcoin, one of the most popular cryptocurrencies in the world.
In 2013, Bitcoin was worth as little as $13 USD per coin, a figure that has recently climbed as high as $5,000 USD.
The large cryptocurrency investment portfolio possessed by the deceased investor meant that his family stood to inherit a significant fortune. The primary issue encountered by the family, however, was the process of locating and accessing the cryptocurrency portfolio.
Bitcoins are a form digital currency, and are protected by unbreakable encryption.
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This is one of the key factors that has made Bitcoin so successful, providing investors with a method of storing secure wealth. This high security factor is a double-edged sword-, protecting cryptocurrency holders from losing their investment, but making it virtually impossible for their assets to be accessed after their death.
This issue is becoming a major problem for individuals that have invested in the cryptocurrency market, which is currently worth more than $70 billion USD.
Bitcoins and the cryptocurrencies are stored in virtual wallets.
These wallets use a complex string of randomly generated characters that are called a “public key”. These public keys are visible to anybody and function as an address that allows for the sending and receiving of cryptocurrency.
A separate private key known only to the wallet owner allows them to access the contents of the wallet.
If the owner of a cryptocurrency wallet dies without sharing this private key, those managing the deceased's estate will likely discover that the wallet is completely inaccessible without the lost private key, making it impossible for them to access the wealth locked inside.
In order to prevent this eventuality, the owner of the wallet simply needs to ensure that the key is provided to heirs in case of their death.
This can be performed by writing it down, storing it on a flash memory drive, or hosting it with a commercial key management service.
Some of these techniques, however, present unique risks. High-profile Murtha Cullina wills and estate attorney Suzanne Walsh has commented on cryptocurrency and deceased estates, stating that it’s highly likely that uneducated executors or heirs will fail to recognize the importance of a private Bitcoin key and discard it, which has provided commercial services with the opportunity to deliver a management service.
According to Walsh, this is the reason it’s likely the family of the deceased Colorado-based cryptocurrency investor will be able to recover the contents of wallet without the private key.
The family discovered that their loved one was investing in Bitcoin by investigating his bank account records, which revealed ongoing debits to Coinbase, one of the largest and most popular exchanges in the cryptocurrency ecosystem.
Armed with these important financial records, the family approached the San Francisco-based exchange.
Coinbase confirmed the existence of the wallet, and is currently in the process of transferring its contents to the family. There are a number of other exchanges that maintain policies that allow the families of deceased investors to access cryptocurrency portfolios, but are reluctant to discuss specifics to reduce the likelihood of fraudsters using fake death claims to steal investor Bitcoins.
What if the family members are unaware of the existence of a deceased individual’s cryptocurrency portfolio, however?
Henry Leibowitz, an attorney working with Proskauer, states that executors commonly use tax filings as a method of locating assets. As many crypto investors are lax about tax reporting, Leibowitz draws an analogy between Bitcoin estates and historical records of individuals dying with stock certificates stored in shoeboxes.
In these historical cases, these stocks typically went unnoticed for decades until the corporation that issued them would conclude that they were unlikely to be redeemed, and surrendered them to the unclaimed property division of their local state government.
Lastly, if cryptocurrencies are not listed in a will, it’s likely that they will be susceptible to what estate attorneys refer to as “probate by truck”, a situation in which heirs claim property under the assumption that the deceased would have “wanted them to have it”.
The difference in this case, however, is that instead of gaining access to jewelry or antique furniture, a relative may walk off with the private access key to a cryptocurrency portfolio worth millions of dollars.
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