In today’s increasingly digital world, more individuals are incorporating cryptocurrencies and non-fungible tokens (NFTs) into their investment portfolios. These digital assets can carry significant value, yet when it comes to estate planning, they are often overlooked or misunderstood. Failure to properly account for digital assets like Bitcoin, Ethereum, or NFTs in your will could result in loved ones struggling to access them—or worse, losing them entirely. In the United Kingdom, it is both legally possible and wise to include these digital assets in your will or broader estate plan, ensuring a smooth and secure transfer of your holdings upon your death.
Digital assets, by their nature, differ markedly from traditional investments. There are no account numbers in the usual sense, no financial institutions to act on your heirs’ behalf, and no straightforward recovery options. The decentralised architecture of these assets provides both opportunities and challenges for inheritance planning. To effectively pass them on, careful documentation and legal strategy are required.
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ToggleCryptocurrencies are decentralised digital currencies that use cryptography for security. They operate on blockchain technology and are stored in digital wallets, which in turn are secured by private keys. Without access to these private keys, ownership of the cryptocurrency cannot be transferred or reclaimed. NFTs, on the other hand, are unique digital tokens that represent ownership of digital or real-world items—such as digital art, music, or even virtual real estate. NFTs are also stored on blockchains and managed through digital wallets.
From a legal standpoint in the UK, digital assets like cryptocurrencies and NFTs are considered property. This classification, affirmed by several UK court decisions and guidelines from the Law Commission, allows for these assets to be included in a will. However, recognising them as property is only the starting point. The real challenge lies in ensuring their accessibility and proper transfer to beneficiaries in a secure and understandable manner.
The first step in planning for the succession of your digital assets is a thorough inventory. You must create a comprehensive list of all your holdings, including but not limited to:
– Types of cryptocurrencies (e.g., Bitcoin, Ethereum, Litecoin)
– Locations of storage (e.g., hardware wallets, software wallets, exchange platforms)
– NFT assets, including details of what they represent and their respective marketplaces (e.g., OpenSea, Rarible)
– Details of staking or yield-generating digital assets
– Any passwords, seed phrases, or PINs required for access—although these should never be included directly in the will
It is paramount to document this information in a secure and sensible manner. Consider maintaining an encrypted digital file or utilising a reputable password management tool that can store and share this data securely with your designated executor or trustee. This inventory should be reviewed and updated regularly to reflect the dynamic nature of digital portfolios.
In the UK, the will remains the primary legal instrument to dictate the distribution of your estate. When it comes to including digital assets, you will need to be explicit and precise. Simply stating “all digital assets” can be too vague. Instead, specify the types of digital assets, and name the beneficiaries for each. While the value of cryptocurrencies and NFTs can fluctuate, the quantitative or percentage-based allocations should be made clear.
It is also crucial to name an executor who understands digital assets or is capable of obtaining the necessary knowledge. You may appoint a specialised digital executor—either separately or as a co-executor—who is specifically tasked with managing the process of identifying, accessing, valuing, and transferring your cryptocurrencies and NFTs.
Equally significant is the use of a Letter of Wishes. Though not legally binding, it can accompany your will and provide guidance on how executors or trustees should manage digital assets. This letter can contain detailed instructions, including how to access wallets, manage NFTs, or handle income-generating digital ventures. However, never include sensitive information such as private keys or seed phrases in the will or even in the Letter of Wishes. Instead, refer to a secure location where these credentials are stored.
Accessibility to digital assets is arguably the most critical component of planning their inheritance. Without private keys, seed phrases, and knowledge of where and how assets are stored, even a clear legal entitlement can be rendered meaningless. Consider the following secure access strategies:
– Use testamentary trust structures that can grant trustees authority and means to access digital assets
– Store private keys or recovery phrases in a vault or safety deposit box with access instructions disclosed through your estate plan
– Utilise encrypted cloud storage solutions with multi-party access protocols
– Leverage custodial platforms where access to digital assets can be controlled through formal identity verification processes
It is essential that any access solution balances the need for security during your lifetime with usability for your executors or beneficiaries after death. Too tight a security regime might prevent access; too open, and it risks compromise or misuse.
Valuing digital assets must be approached with care in estate planning, especially as cryptocurrencies and NFTs are highly volatile. For inheritance tax (IHT) purposes in the UK, the value of your digital assets will be assessed as part of your estate’s total value at the time of death. HM Revenue & Customs (HMRC) treats cryptocurrencies as assets, not currency, and thus levies inheritance tax based on their fair market value in pounds sterling at the date of death.
This valuation can be complex, particularly when dealing with assets held across multiple blockchains or exchanges, or in the case of less liquid NFTs. Professional appraisal from qualified digital asset valuers may be recommended, especially for high-net-worth estates. Executors will need to report these valuations on probate forms and settle any IHT owed accordingly. If digital assets are sold later to pay taxes or settle the estate, any gains realised can be subject to Capital Gains Tax (CGT).
Special consideration is warranted for NFTs that may carry intellectual property rights or royalties. These elements can generate income posthumously, and such income may need to be reported under the estate’s income tax obligations. Legal advice should be sought to understand how these aspects fit into ongoing estate administration.
One of the greatest risks with digital assets is the potential for permanent loss. Examples abound of investors who passed away without leaving behind access credentials, causing their assets to become unrecoverable. To avoid this:
– Do not merely leave the name of an exchange; ink specifics and access details indirectly
– Avoid DIY approaches that lack professional legal oversight
– Do not rely on outdated instructions or fail to update your estate plan after moving assets
– Educate your executor and key family members on the existence and importance of your digital holdings
Additionally, be cautious of the terms and conditions of various platforms. Some do not allow the direct transfer of accounts, complicating the inheritance process. Verify what posthumous asset retrieval procedures exist for any custodial exchanges you use. Some platforms, like Coinbase, offer explicit guidance for executors, while others may not support any mechanism for account access post-death.
For those with significant holdings or intricate portfolios, more sophisticated legal instruments may be appropriate. Testamentary trusts, lifetime discretionary trusts, or even offshore entities can be leveraged to manage access, reduce tax liabilities, and maintain the long-term benefits of digital asset wealth.
Trusts can distribute income-generating digital assets like staking coins or rental-generating NFT land parcels in the metaverse. Trustees can be chosen for their digital acumen or can be supported by advisors with relevant experience. By using a trust, you might also be able to defer or reduce exposure to IHT, depending on how the trust is structured.
Additionally, trusts can provide continuity of management and prevent inexperienced beneficiaries from mishandling volatile assets. However, setting up such structures requires careful legal planning and continuous oversight, especially given how quickly crypto and NFT regulations can evolve.
Digital assets are still relatively new and unfamiliar to many. It is crucial not only to designate these assets in a will but to ensure the people involved in their administration or ownership understand what they are and how to manage them. If an executor or beneficiary has never handled a crypto transaction before, you may want to provide supplementary education or connect them with professional advisors.
You might consider including links to educational resources, hiring a crypto-savvy solicitor, or involving a digital custodian service. If beneficiaries are too young or not financially responsible, delayed distribution mechanisms or spendthrift clauses can protect the assets while still honouring your intentions.
The landscape for digital assets is rapidly evolving. In the UK, the Financial Conduct Authority (FCA) has increased scrutiny over crypto markets, and further legislative clarity is expected. Additionally, the Law Commission has been tasked with exploring how digital assets fit within existing property laws. These changes can impact how your estate plan should be drafted.
Regular reviews of your estate planning documents are essential to ensure compliance with the latest legal and tax frameworks. Working with practitioners who stay current with regulatory developments will help futureproof your estate and avoid complications down the road.
As digital assets become more mainstream, incorporating them into estate plans will no longer be optional but essential. While the process may appear complex, forward-thinking estate planning provides peace of mind, safeguards the value of your investments, and ensures your loved ones can benefit from your accumulation of digital wealth. By inventorying assets, securing access, appointing knowledgeable executors, and seeking professional legal and financial support, you can ensure these cutting-edge assets are responsibly passed on to the next generation.
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