What happens to accumulated crypto assets after a death? That's something most investors haven't thought about. Or something that heirs suddenly run into. Do the heirs know at all that the deceased had crypto? And how do they access the funds?
Don't let crypto go to waste
This certainly doesn't always go well. For example, Matthew Mellon, who had about $1 billion in XRP at the time, died in 2018. He took the security of his assets very seriously. He distributed his wealth in the cryptocurrency XRP across dozens of "cold wallets" that were stored offline. He often maintained these wallets under false names and secured them with keys that Mellon had stored in various bank vaults worldwide.
From a security standpoint, this was a good plan. But when he died prematurely, no one had any idea where these keys were kept, and as a result, the majority of his crypto wealth was lost. Similar situations have also occurred with other crypto, such as Bitcoin.
Solutions for crypto inheritance
To avoid putting heirs in a difficult situation, there are several options for settling crypto inheritance.
First, you can write down the passwords to all accounts. But an intruder or other malicious person can also find those. In addition, many exchanges and brokers use 2FA which also requires the phone or another authentication method to gain access. So this is not the best option for most crypto investors.
For the tech-savvy crypto owners, there are also solutions to consider, for example, smart contracts that transfer the crypto directly to the heir's wallet. But how does the contract know that someone has died? And this heir must also have at least a decent level of technical knowledge. So for most people, this is also not advised.
When passwords or seed phrases need to be transferred to the next generation, it is advisable to do this at a notary: recorded and detailed in a will. This way all details will be disclosed after one's passing, including clear instructions.
Things to keep in mind when arranging a crypto inheritance
There are several important considerations. The first is security. As mentioned earlier, keys and information should be carefully stored in a reliable place.
In addition, it is a good idea to involve a legal advisor or notary in the process to ensure that the will is legally valid and in compliance with applicable laws.
How does inheritance tax for crypto work?
A crucial aspect of a crypto inheritance is the inheritance tax. Tax laws related to crypto vary greatly by country and can change over time. In the Netherlands, crypto assets are subject to inheritance tax the same as other assets. In 2024, the value of the crypto at the time of death is taken as the price they will base every calculation upon. The rate depends on the amount and the relationship of the heir to the deceased. Inheritance tax is due only when the assets exceed the exempt amount. This exemption also depends on the relationship of the heir to the deceased.
The following rates apply in the Netherlands in 2024:
|Value of inheritance
|Partner or (foster- of step)child
|Others, e.g. siblings, parents or friends
|€0 to €152,368
What happens to crypto assets when someone has passed away?
There are some steps that next of kin of someone with crypto assets can follow.
First, one begins by identifying all of the deceased's crypto assets. All passwords, any 2FA access (usually via email or phone), and maybe even seed phrases need to be pieced together. Possibly the deceased had accounts at multiple exchanges.
Also check for hardware wallets in the home, such as in a safe deposit box. With some exchanges, it is possible to contact their help desk to indicate that a loved one has passed and the heirs would like access to the assets.
At this point, it may be advisable to consult a lawyer, notary or specialist with experience in crypto assets. It can be legally and technically challenging to handle everything yourself.
Do not immediately transfer all crypto to a private account, but first check against any will how the distribution should be among the heirs. It is not as simple as 1 Ethereum to John and 1 Bitcoin to Pete - that is not a fair distribution because the euro value of both coins is far apart. Find out the value (in euros) of all cryptocurrencies at the time of death so that the assets can be distributed fairly. Financial and legal advisors are crucial in this.
Cryptocurrencies are usually held at an exchange, on a software wallet, or a hardware wallet. A deposit (withdrawal) can be used to transfer the cryptocurrency to a now self-created account or self-created wallet. Such a transfer goes over the blockchain, which also involves blockchain fees. This requires the "address" of the receiving wallet.
First time doing a transaction with cryptocurrency? It is recommended to do a "test transaction" with a small amount first, to check that it arrives correctly. This usually takes a few minutes. Above all, enlist help when needed when making a transfer.
Taxes and banks:
When someone receives a large amount of euros in a bank account from a known crypto exchange, banks may call to verify the origin of this amount. They do this to prevent money laundering - they are therefore obliged to monitor and report suspicious transactions.
Therefore, make sure from the very first moment that everything surrounding the crypto legacy is well documented. Finally, crypto assets are not excluded from inheritance tax. Make sure to abide by all applicable laws.
Outsourcing crypto estate planning
Many things need to be taken care of and can go wrong around planning a crypto estate. Arranging the estate in advance with a will with proper instructions can save the heirs a lot of complications and stress.
At Blockrise, we can offer support in this regard. For example, we also document all the origins of the cryptocurrencies entrusted to us, ensuring a complete file is ready for the heirs when banks or tax authorities ask for it. In addition, we provide secure storage of crypto such as Bitcoin and Ethereum.
The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.