Cryptocurrencies: how to properly transmit your digital wealth to your heirs?

Although it may be perceived as risky and difficult to invest in cryptocurrencies, transmitting one’s digital wallet to beneficiaries can be all the more complex. How to properly transmit your digital heritage to your heirs? Let’s look at various solutions offered by blockchain and the advantages it brings compared to more traditional transmission instruments.

Possible reconciliation between self-sovereignty of its crypto-assets and their inheritance transmission?

The adage “not your keys, not your coins” combined with the rule of self-sovereignty or personal sovereignty, namely having full ownership and responsibility of one’s funds through the complete knowledge of one’s “private keys,” designate two essential principles in the cryptocurrency ecosystem.

Investors must rely on a decentralized network consisting of a blockchain rather than a central body that is known to devalue the assets of others.

In order to guarantee the sovereign possession of its digital heritage, the author must keep this information secret, even from his relatives.

However, the autonomy allowed by so-called self-sovereignty may have a significant, often unsuspected gap: inheritance. In such a context, how can you ensure that your crypto assets are transmitted appropriately and on time to your heirs?

In other words, the main problem is determining the best way to transmit your private keys “after our death” without revealing them “before” or ensuring that they will not be stolen, misplaced, or inaccessible during our lifetime.

Do we need to remember that by depositing their cryptocurrencies on a centralized exchange or CEX (such as Binance, for example), most investors seem to lose sight that they no longer have control of their private keys? Faced with such a finding, it will be up to the crypto investor to take appropriate measures to transmit his account credentials during his lifetime upon his death.

These seemingly innocuous questions are nevertheless fundamental, knowing that to date, it is estimated that nearly 6 million BTC are lost forever and are now in inaccessible wallets. We do not know how many of these bitcoins belong to HODLers who have died without thinking of sharing access to their wallets with others, either because they will take care of them later or will part with them bitcoins before they die, or even because they will live forever.

For example, although it will never be possible for us to know exactly how much BTC the creator of Bitcoin, Satoshi Nakamoto, was able to extract, the most commonly accepted estimate is that he would hold a wealth of about 1.1 million BTC, a fortune currently unattainable for the same reason: no one else has access to it.

What about Matthew Mellon, a famous 54-year-old banker who died suddenly in 2018, leaving behind a portfolio, not due to his heirs, estimated at $ 500 million of XRP (fructified from the capital of one million dollars that was quickly transformed into a billion dollars)?

In addition, if 4% of the world’s population now owns cryptocurrencies, according to a Triple-A report, this rate is increased to 6% for the French, according to a study by the European Central Bank (ECB) published in May 2022. The latter figure would even be 9.4%, according to a study led by KPMG reported by the Association for the Development of Digital Assets (Adan).

Interestingly and interestingly, a 2020 study by the Crenation Institute reveals that today nearly 90% of cryptocurrency holders worry about their assets and fate when they die. Despite these concerns, cryptocurrency owners are almost four times less likely to use a will to pass on their digital inheritance than investors who do not own cryptos.

Traditional and blockchain-based estate planning tools

To remedy this, let’s look at some estate planning tools, which are not intended to be exhaustive, allowing you to dispose of your capital in cryptocurrencies to your heirs by using solutions from blockchain technology while highlighting several advantages allowed by the latter compared to more traditional techniques.

The first option that comes to mind for inheriting your digital assets is to contact a trusted third party and entrust them with their keys. This intermediary can be of two types.

The first figure that one naturally thinks of is a close person, but who is not as such the heir. Although appealing to this relative may initially seem reassuring, no guarantee and certainty can be given that the private keys representing the recovery information allowing access to cryptos operating like passwords are stolen or used for malicious purposes. Caution and vigilance, therefore, remain the order of the day.

Using either a conventional bank or a crypto exchange platform may also constitute a trusted third party.

Thus, the American exchange Coinbase allows a family member to access the account of a deceased relative after providing several documents, including a death certificate, a last will, a certificate of an estate, and a valid state-issued photo ID of the person(s) mentioned in the letters of assist.

A second helpful inheritance planning tool that comes to mind is donating one’s digital heritage to one’s children during one’s lifetime. Current French tax legislation allows an individual to give, every 15 years, 100,000 euros per child (or 31,865 euros per grandchild) without having to pay gift tax (beyond this threshold, qualified as a reduction, donations are subject to progressive taxation).

It is also preferable to first make a donation of its cryptos and then, if the donees wish, to their subsequent sale (even though they would have realized a capital gain in the meantime) since said donation will purge the latent capital gain relating to the cryptos given and only a single lump sum levy (PFU) of 30% will apply, Also called “flat tax.”

A third exciting tool to transfer your cryptocurrency portfolio to your beneficiaries is to formulate it in an authentic will (i.e., a will drawn up by a notary) or mystical will (the testator transmits his closed, sealed, and sealed will to the notary).

The will in question can simply mention the existence of a crypto wallet (assuming then that the legatees will know how to access it), or both indicate the presence of this wallet and its steps. In this second hypothesis, it may be exciting and recommended to draw up an accurate and detailed inventory of its holdings in cryptocurrencies and explain the way and manipulations that will be necessary to reach them.

, nothing prevents the author of the will from using Pamela Morgan’s advice and directives from her book “Cryptoasset Inheritance Planning,” which proposes to establish a succession plan for his crypto-assets in a letter slipped into a closed envelope and intended for the heirs and that they will read at the death of the deceased.

Whether such a transfer takes place by way of a gift or using a will, it should be noted that it will be necessary for the donee-heirs to maintain sight of the following elements. To access cryptos given inter vivos or bequeathed by will, they will have the task of opening an account on a cryptocurrency exchange platform or creating a so-called self-hosted digital wallet (non-custodial wallet).

On the day of the transfer, the donor and the beneficiaries, with the help of a notary, will have to determine the portfolio’s value by comparing the price of crypto-assets on different exchanges, then averaging the different prices. For this purpose, it should be noted that they can use aggregators such as CoinGecko or CoinMarketCap. Cryptocurrencies use these platforms.

READ MORE: What is Arbitrum, the new L2 on Ethereum?

The use of blockchain as the best alternative?

Using a decentralized solution provided by the blockchain directly to donate its capital in cryptos or bequeath them through a will to its beneficiaries makes it possible to dispense with the pitfalls above and enjoy the following advantages.

Smart contracts

The execution of the smart contracts of a decentralized application (or DApp in English) offers the guarantee of a more incredible speed in the sequence of all the stages of the realization of the succession planning vis-à-vis its traditional variant mentioned above, thus offering more efficiency and serenity. The following events resulting from human intervention will be non-existent:

  • the search and contact of heirs who would reside on the other side of the globe (which can be tedious and time-consuming);
  • the notary or heirs may either be late or absent from a meeting;
  • a certificate from a bank or the tax authorities from the country of the beneficiary) or an authorization document (a power of attorney from an heir to receive the funds in question) must be included, or it needs the required formalism (date, signature, apostille, etc.)

Cost savings

Confirmation of a significantly lower and predictable cost: only any service fees and so-called “gas” fees, i.e., a payment unit allowing the payment of transaction fees, are only due and can be consulted before the transaction.

Greater trust

An increase in trust due to a greater probability of honesty: unlike a centralized human interposition, the determination of the calculation and fixing of the fair monetary valuation of the crypto-assets whose disposal is envisaged is allowed by the execution of DApps jointly with one or more oracle(s).

Better privacy

The certainty of greater control and discretion of our data so that they remain more confidential: unlike a notarial act which must for its validity and its opposability to third parties to take over a set of data prescribed by law, including in particular the identity of the parties (their surname, first name, civil status, and address), with a DApp, Only certain essential information (such as the date of the transaction, its amount and fees as well as the cryptographic public addresses of the sender and recipient), will be recorded and searchable in the blockchain and at any time, which can be a source of relief and peace of mind in the face of possible somewhat prying eyes (known or unknown to relatives, future heirs or any other person).

Resistance to censorship

The guarantee that the funds are uncensorable (no one can prevent their transfer or force the display of their contents, except their owner) and cannot be blocked, seized, or confiscated, at least not as quickly as by going through either a fiat currency transmission solution or a transfer solution offered by the blockchain but entirely managed by a centralized authority such as a bank, a crypto exchange, notary, lawyer, etc.

A less restrictive operation

The assurance of greater flexibility, flexibility, and adaptability in the execution of the operation: where several traditional modalities can accompany the donation recorded by notarial deed, greater creativity is allowed by using a donation operated in a decentralized way by the blockchain. To illustrate our point, let’s take the example of the so-called Consent Protocol resulting from the Ternoa project.

Conclusion on the transmission of cryptocurrencies to his heirs

As you will have understood, many techniques enable transmitting one’s digital heritage to benefit one’s heirs. Due to their particularity, each has its uses and defects.

It is, therefore, up to everyone to weigh the pros and cons of each planning tool mentioned above. Thus, it will be necessary to examine the degree of speed desired for the completion of each transaction. The costs involved and the possibility of previewing them before each execution must also be considered.

The level of importance attached to integrity in the calculation and setting of the fair financial estimate of crypto-assets should be addressed.

A point will also have to be established regarding the search for more confidentiality of personal data. The aspiration to avoid as much as possible the sensor ability, blocking, seizure, or confiscation of its cryptos can also be a determining criterion.

Finally, it will also be necessary to determine its willingness for more flexibility, flexibility, and adaptability in implementing its succession programming.

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