As cryptocurrency becomes more popular, investors are starting to worry about what will happen to their Bitcoin investment after they die. While this way of thinking seems to be more relevant to older investors, younger investors also need to document how their Bitcoin will be distributed, should they pass away prematurely in an accident or from an illness.

Coincover, who partners with the world’s leading cryptocurrency solution providers to deliver security and assurance in cryptocurrency for individual investors, estimates that around 4 million Bitcoin has been lost as a result of the death of Bitcoin investors who have not made sufficient plans to transfer their Bitcoin to their heirs.

In one particular case, Matthew Mellon, a US investor passed away with an estimated fortune worth more than $500 million in the cryptocurrency, leaving no clues as to how his funds could be accessed and distributed to his heirs. In cases such as these, families are significantly impacted by the loss of an irretrievable fortune.

Lack of Bitcoin Estate Planning

According to a July 2020 study by the Cremation Institute, a group of experts, contributors and researchers who aim to create a reliable community resource for cremation issues, only about 25% of Bitcoin investors have made a plan for their Bitcoin assets after their death. Most of these are made up of investors aged 41 to 76. The lack of government regulations and crypto estate planning services are primarily responsible for this predicament, although complacency also plays a role too.

South Africa and Bitcoin

In South Africa, although it is legal to trade Bitcoin, the South African Reserve Bank does not regulate any form of virtual currency and regularly highlights the risks associated with cryptocurrencies, including Bitcoin. The Reserve Bank also regards any Bitcoin transactions as performed “at the end user’s sole and independent risk and have no recourse to SARB.”

In short, cryptocurrency falls outside of South Africa’s definition of legal tender and does not release a debtor of their monetary obligations. As per the Financial Markets Act, 2012 (Act no. 19 of 2012), virtual currencies may not be used as securities and are also not subject to the same standards and protection that applies to the trading of regulated securities.

SARS and Bitcoin

If you are a resident of SA, any profits made through cryptocurrency trading are subject to taxation by the South African Revenue Services (SARS), as they interpret cryptocurrency as an “asset of intangible nature which is to be treated as gross income or as capital for income tax purposes.” Up until recently, these assets were hidden in undetectable e-wallets until the time came to sell them. South African investors will be seeing changes around this in the near future.

Securing Your Bitcoin

With Bitcoin, you are entirely in control of your funds. However, with this sovereignty comes the need to protect your funds in a world full of hackers and IT breaches. Physically speaking, Bitcoin is a piece of code, so in order for somebody else to access them – such as after your death, it will require access to your wallet via a virtual key. Bitcoin uses a desktop wallet, and the level of security is really dependant on your IT security in terms of what websites you visit, how regularly you undertake backups, which anti-virus programme you use, etcetera.

Bitcoin and Estate Planning

Once you’ve bought your cryptocurrency and ensured its security, you will need to consider a Bitcoin inheritance plan for your beneficiaries. If you don’t have such an inheritance plan for your Bitcoin, it will be impossible to pass on ownership of your Bitcoin to your heirs. Part of designing an inheritance plan is selecting an intermediary whom you can entrust with your cryptocurrency access codes so that, in the event of your death, someone trustworthy can access and distribute your Bitcoin accordingly.

Another suitable option would be to use a trusted attorney to hold the sensitive information in safekeeping. Your financial and legal advisor will also need to be informed about your Bitcoin investment when they conduct your estate planning. They will require information such as where your cryptocurrency is held, what the usernames and passwords are, and who the asset should be distributed to in the event of your death. You may request that only the Executor release the sealed document containing this information to the beneficiary at the time of your death. Whatever you do, do not include your password details for accessing your cryptocurrency in your Will as this becomes a public document after your death.

You will then need to write down the instructions regarding accessing your account where the cryptocurrency is stored. This should include everything an intermediary would require, from pin codes to passwords. A two-factor authentication is recommended, as this will require an additional level of security in the form of a code sent to your mobile via SMS. Remember to include all this detail with your Bitcoin access instructions in your inheritance plan.

Another alternative method is to use a “cold storage” system which involves a USB drive containing your account passcode to protect your cryptocurrency. Using this, your wallet can only be unlocked once the drive is plugged into a computer without the need of having to write down your passwords. This USB “key” can be left in the care of your Attorney, together with your Will and clear instructions that it be issued to the beneficiary or another trusted person in the event of your death.

Blockchain technology is used to provide security for digital assets and the inheritance thereof. This type of technology, which has been a foundational feature of cryptocurrency, enables users to confirm transactions without the need for a central clearing authority, i.e. a human intermediary. It uses advanced cryptographic processes to verify the origination of the information and reduces the risk of hackers intercepting sensitive data.

Although attracting growing interest, no one truly knows what the future of Bitcoin holds. There are many scenarios stretching from bullish to bearish. However, it is essential that you consider any cryptocurrency that you may own when it comes to your estate planning, so as to not leave your heirs out in the cold.

Remember to also make a note in your Life File about your Bitcoin and how access can be gained in case of your demise. Read more… https://sonjasmith-funerals.co.za/my-life-file/