Renette Hendriks, Director, clarifies how to deal with crypto assets.
Satoshi Nakamoto, the father of Bitcoin, defines it as “a chain of digital signatures. Each owner transfers to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.”
With around 4.2 million crypto owners, South Africa ranks in the top 10 “crypto nations” in the world. As we are slowly but surely getting used to the idea of a paperless society, the questions which are not immediately thought of by investors are: how do I record my investments in cryptocurrencies and how will it be accounted for in my Estate?
Investments in cryptocurrencies, like all other investments, are assets in your estate and are subject to the normal principles of South African income and capital gains tax during your lifetime and estate duty following your death.
The anonymous nature of cryptocurrencies and the manner in which you hold ownership thereof, would make it virtually impossible for your executor to trace your holdings and properly account and transfer them to your heirs, if it has not been properly recorded.
So, how do you then deal with cryptocurrencies in your Will?
These investments are mostly held via cryptocurrency wallets, like Luno, which reflect the value of the various currencies. These wallets contain the keys to your investments. As the keys are crucial for transferring ownership, it is the keys which need to be protected and practically dealt with by your executor. If a key is lost or no longer accessible, then, in essence, your investment is lost. It is thus important to ensure that your executor will have access to the keys following your death.
For obvious reasons, it is not advisable to include the access details to your wallet in your Will as such, but to at least include a clause noting the existence of these investments and your wishes around the manner in which it should be dealt with in your Estate.
Your access details should be recorded in a separate document that will be stored in a secure place, only identified to your spouse, executor or other trusted person. You can state in your Will that you have created this document and who can be contacted to gain access thereto.
We will gladly assist you in revising your Will to ensure that these measures are in place and that it can be practically implemented when your Estate is being dealt with.