This is an opinion editorial by Jenna Bunnell, Senior Manager of Content Marketing at Dialpad.
No matter what your opinion on bitcoin, it is clear that it is here to stay and will continue to grow in use.
Bitcoin has become widely accepted in many countries as a virtual peer-to-peer currency. You can sell your bitcoins for cash, or trade them with peers on various networks and use it to invest in anything from art to property.
However, as it is a virtual currency, the question arises; What happens when you die? While this is a morbid thought, it is important to plan ahead for your family and loved ones. So, what happens to bitcoin when you die and how do you incorporate BTC into any legacy plans? Is it a simple process to include BTC in a will, just as you would with tangible assets like your home and your bank accounts?
What is bitcoin?
The origin of bitcoin dates back to 2008 when a white paper was released titled “Bitcoin: a peer-to-peer electronic cash system, Written by Satoshi Nakamoto (a name assumed to be a pseudonym, perhaps even belonging to more than one person). The idea behind the white paper was to create an entirely digital currency that would exist outside the normal centralized control of banks and governments.
At its core is the use of peer-to-peer software and high levels of encryption (based on the SHA-256 algorithm designed by the US National Security Agency). All transactions are recorded in a publicly available ledger 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 across the network and shared between nodes. These transactions are collected in a block approximately every 10 minutes and added to the blockchain.
People often have the misconception that they need to buy the whole unit, but BTC can actually be subdivided to seven decimal places, creating smaller and more affordable units – the SAT.
Once you’ve bought (or mined) bitcoins, you keep them in a digital wallet, which you can access using specialized software. Given that these coins do not exist in real life, and that ownership is based on agreement between members of the network, how do you decide what happens to bitcoins when you die? Also, as many BTC owners remember their wallet keys and keep no other records, what if they suddenly die?
Talking or thinking is not the most pleasant thing, but death is inevitable. Fewer than 50% of adults in the US have already made a will, although, of course, this figure varies among different age groups – more than 75% of those over the age of 65 have made one, while Only 20% of people under 30 have made a will.
From a legal standpoint in the US, this can be quite confusing. The IRS does not view cryptocurrencies as currencies, but as tradable goods that can be taxed by the relevant authorities. Yet we also treat them as property and thus there must be some kind of legal control when it comes to inheritance.
This control or oversight comes from the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). This law was developed to provide concerned parties (such as lawyers or fiduciaries) with clarity and legal access to any digital assets held by the deceased person’s estate (or indeed when a person is incapacitated). method can be provided.
The law was written by the Uniform Law Commission (ULC) for states to examine and adopt. As of 2021, 47 states had enacted the law. So, at least for the US, there is a framework that governs the management of digital assets, something that will come as a relief to many who were previously unsure.
How does Roofda work?
You have to first consider that there are three groups of people with vested interests in what happens:
- Digital asset owners who want that level of privacy.
- The custodian of those assets (businesses that create, store or sell assets online).
- fiduciary or solicitor relating to property.
The biggest obstacle before the law was that unlike physical assets, there has always been some degree of secrecy regarding digital assets. In the early days, there were no laws that clarified access to those digital files and wallets in the event of death or disability. If the original owner of digital assets had left no note of access to those assets, the sad reality is that they could be lost forever.
It is important to note that Rufada does not focus solely on cryptocurrencies, but on all digital and online assets. This includes things like Facebook or Google accounts. The custodian has certain rights as to what they may issue or whether they request a court order to access and/or return the information. In the case of things like Facebook accounts, the custodian can also decide what is “reasonably necessary” when it comes to releasing any information.
Roofda and bitcoin
RUFADAA only applies if the original owner has authorized access to their bitcoins. This can be through documents signed and held with the custodian or it can take the form of legal documents such as power of attorney, will or trust document.
A custodian may also limit how much access your fiduciary has, usually to include only those aspects that let them carry out their responsibilities. The custodian also has the right to charge administrative fees for any access provided by them. This can be important information if you are trying to determine what will happen to bitcoin when you die.
One of the main benefits of RUFADAA is that it clarifies the legal hierarchy of documentation – and subsequent distribution – of your digital assets. The custodian (or online management system) is viewed by RUFADAA as the highest authority for cryptocurrency account ownership.
What this actually means is that if you have made Person A the beneficiary of your digital assets in the document with your custodian, that document takes precedence over other legal avenues such as a Will, PoA or Trust. If you don’t have a beneficiary agreement with your custodian, ownership will go to anyone named in those common inheritance documents.
If a scenario arises where there is no general agreement and no custodial agreement, any transfer of ownership or fiduciary responsibility may be set up by the custodian’s own terms and conditions.
What should you do?
When thinking about what happens to bitcoin when you die, you have two main options.
You can either ask your custodian if they have a specific tool or framework for naming a beneficiary on your account, which will only apply if you hold your bitcoins on an exchange – a recommended practice. Your second choice is to go the traditional route and name any beneficiary in your BTC under Will, Trust Document, PoA or in property documents.
If your assets include BTC (or any other cryptocurrency), you should consider a plan that covers all aspects of your digital asset. This means there is a way to pass all the details like account details, keys and access to any hardware wallet to the person you want to receive those assets or your fiduciary/lawyer.
In any will or similar document, you are required to include instructions for passing on any data, especially the most sensitive data associated with the account. Mere passing of the used hardware device is not enough for the beneficiary to take control of the account.
Despite its development, many people still question whether BTC is a real currency. Yet growth and statistics show a lot that this is something that is here to stay.
You should think of any bitcoin as an asset; It may not be as physical as your house or car, but it still has real value. Therefore, you should carefully consider what you want to do with your bitcoins in the event of your death or disability. Knowing what and what will happen to bitcoin when you die means that your assets can be passed on to your intended beneficiaries.
This is a guest post by Jenna Bunnell. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.