What happens to Bitcoin when you d1e?

No matter what your opinion of bitcoin is, it is obvious that it is here to stay and will continue to grow in use. As a peer-to-peer virtual currency, bitcoin has become widely accepted in many countries. You can sell your bitcoin for cash or trade it with peers on different networks and use it to invest in anything from art to property.

However, as it is a virtual currency, the doubt arises; What happens when you die? While it’s a morbid thought, it’s important to plan ahead for your family and loved ones. So what happens to Bitcoin when you die and how do you include BTC in any inheritance plans? Is it a simple process to include BTC in a will like you would tangible assets like your house and bank accounts?

What is Bitcoin?

The origins of Bitcoin date back to 2008 when a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published by Satoshi Nakamoto (a name that is assumed to be a pseudonym, perhaps even belonging to more than one The idea behind the white paper was to create a completely digital currency that would exist outside of the normal centralized controls of banks and governments. Its essence is peer-to-peer software and the use of high levels of encryption (based on the SHA-256 algorithm designed by the US National Security Agency).

All transactions are recorded in publicly available ledgers on servers around the world and anyone with a computer can set up one of these servers, known as nodes.Every time a transaction occurs, it is broadcast to the entire network and shared between the nodes. These transactions are collected, approximately every 10 minutes, in a block and added to the block chain. 

People often have the misconception that they need to buy whole units, but BTC can be subdivided to up to seven decimal places, creating smaller, more affordable units: sats.

After you buy (or mine) bitcoins, you store them in a digital wallet that can be accessed using special software. Since these coins don’t exist in real life and ownership is based on agreement between members of the network, how do you decide what happens to Bitcoin when you die? Also, since many BTC owners memorize their wallet key and keep no other records, what happens if they suddenly die?

I remember I died

Image taken from news.gallup.com Not the most pleasant thing to say or think, but death is inevitable. Less than 50% of adults in the US have ever made a will, though of course that number varies across age groups: More than 75% of people age 65 and older have, while only 20% of people under the age of 30 have done so. made a will From an American legal perspective, it can be quite confusing. The IRS does not consider cryptocurrencies as currencies, but as tradable commodities that can be taxed by the proper authorities. However, we also treat them as assets and therefore must have some form of legal control when it comes to inheritance. 

This control or supervision comes from the Revised Uniform Law on Fiduciary Access to Digital Assets (RUFADAA). This law was developed to provide relevant parties (such as lawyers or trustees) with clarity and a legal way to deal with any digital assets held by the estate of a deceased person (or even when a person is incapacitated).

The law was written by the Uniform Law Commission (ULC) so that states could review and adopt it. By 2021, 47 states had enacted the law. So, for the US at least, there is a framework that governs digital asset management, something that will come as a relief to many who were previously unsure.

How does RUFADAA work?

First you must consider that there are three groups of people who have an interest in what happens:

• The digital asset owner who might want a level of privacy.
• The custodian of these assets (companies that make, store, or sell assets online).
• The trustee or lawyer who manages the property.

The main hurdle the law faced was that, unlike physical assets, there has always been a degree of secrecy surrounding digital assets. In the early days, there were no laws clarifying access to these digital files and wallets in the event of death or disability. If the original owner of the digital assets had not left a note on how to access those assets, the sad reality is that they could be lost forever.

It is important to note that RUFADAA does not only focus on cryptocurrencies, but on all digital and online assets. This includes things like Facebook or Google accounts. Custodians have certain rights as to what they can release or if they request a court order to release access and/or information. In the case of things like Facebook accounts, the custodian can also decide what is “reasonably necessary” when it comes to disclosing any information.

RUFADDA and Bitcoin

RUFADAA only applies if the original owner has authorized access to their bitcoin. This can be through documents signed and maintained by the custodian or it can take the form of a legal document such as a power of attorney, will, or trust document.
A custodian may also limit the amount of access its trustee has, generally to include only aspects that allow it to carry out its responsibilities. The custodian is also entitled to charge administrative fees for any access it provides. This can be important information if you are trying to decide what will happen to Bitcoin when it dies. 

One of the main benefits of RUFADAA is that it clarifies the legal hierarchy when it comes to further documenting and distributing your digital assets. RUFADAA considers the custodian (or online management system) to be the highest authority when it comes to ownership of cryptocurrency accounts.

What this really means is that if you made Person A the beneficiary of your digital assets in a document with your custodian, that document will take precedence over other legal avenues, such as wills, POAs, or trusts. If you do not have a beneficiary agreement with your custodian, the property will go to anyone named in these normal estate documents. In the event a scenario arises where neither the normal agreements nor an escrow agreement exist, any transfer of ownership or fiduciary responsibility can be set out in the custodian’s own terms and conditions. 

What should you do?

You have two main options when you think about what happens to Bitcoin when you die.

You can ask your custodian if they have specific tools or a framework for naming a beneficiary for your account, which would only apply if you held your bitcoin on an exchange, which is not the best practice. Your other option is to go the traditional route and name any beneficiary for your BTC in a will, trust deed, under POA, or in ownership documents.

If your property includes BTC (or any other cryptocurrency), consider a plan that includes all aspects of your digital assets. This means having a way to pass all the details, such as account details, keys and access to any hardware wallets, to the person you want to inherit those assets from or to your trustee/attorney. In any will or similar document, you should include policies for passing on any data, especially the most sensitive data associated with the account. Mere delivery of the used hardware device is probably not enough for the beneficiary to take control of the account. 

Food to go

Despite its growth, many people still question whether BTC is a real currency. However, the growth and the numbers show a lot that this is something that is here to stay.

You should think of any bitcoin you own as an asset; It may not be physical like your house or your car, but it still has real value. Therefore, you should carefully consider what you want to happen to your bitcoin in the event of death or disability. Knowing the steps to take and what happens to bitcoin when you die means that your assets can be transferred to the beneficiaries of your choice.

This is a guest post by Jenna Bunnell. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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