CIt was inevitable that virtual money and digital currency would find its way into our everyday lives. After all, we have virtual friends thanks to social media and virtual shopping malls thanks to online retailers….
Cryptocurrency forms part of your digital assets. Unlike other digital assets such as login credentials and social media profiles, it has a monetary value. Nobody will know that you own this asset unless you have advised them accordingly. This is great if you are planning to keep your wealth under the radar, but what will happen if you pass away unexpectedly and you have not informed your heirs about your cryptocurrency stash?
Even if your heirs do know about your cryptocurrency, this is not something that they can access without your login credentials. The importance thus of providing your lawyer and/or estate planner with these details cannot be stressed more. This will not only enable them to administer your estate accordingly, but will also ease up the process of gaining access to these crypto currencies.
As cryptocurrency is an asset in your estate, it will be subject to executor remuneration, as well as estate duty.
The South African Revenue Services (SARS) has stated that crypto currency transactions are subject to the general principles of our tax law. Therefore any revenue received, gains made or losses incurred may be regarded as revenue in nature and will be included in the taxpayer’s income tax or as capital in nature and be subject to capital gains tax in the taxpayer’s hands.
The executor of your estate will have to determine the monetary value of your cryptocurrency. They would have to establish in which cryptocurrency you have invested, as well as the quantity thereof and then calculate its value. The executor is placed in a very difficult position due to daily cryptocurrency rates changes and the value will either increase or decrease, depending on the market.
One of the most efficient ways of transferring your digital assets to your beneficiaries may be to make the transfer itself a digital process. There are a number of ways to do this. One option is for multiple signature transactions. In Bitcoin this is known as M-of-N transactions. This means that a minimum number of signatures are required out of the number of possible signatories that you have provided. These signatories can be, for example, the heirs as well as the nominated executor of your estate.
Another option is for an event to trigger the transfer. Bitcoin calls this the Dead Man’s Switch method. This method uses a computer generated program to send emails to you on a regular basis. If you don’t respond to these emails, the computer will automatically log into a database to check for a death certificate. If there is one listed, the transfer will automatically commence.
A last option is to use a Smart Contract. These contracts are also known as Lock Time Transactions. This requires you to identify a time at which the transfer of the asset is to occur. You then need to continually reset or postpone the transaction. Upon your death the transaction will be effected on the date to which it was postponed.
There is no doubt that cryptocurrency is of great value to many people, but it’s also really important that if you decide to invest in digital currency, you should consider what will happen to it after you pass away. This includes obtaining legal advice on how to manage those assets and how they should be transferred to your beneficiaries after you are gone.
Rauch Gertenbach is committed and ready to assist you and your loved ones in ensuring that this is a stress free process.