Over 106 million people worldwide hold cryptocurrency, as of 2021, and that figure is only set to boom further as digital assets become increasingly nestled into the mainstream.

With crypto's growing popularity, a rising number of people will no doubt be wondering what happens to your cryptocurrency stash after they die. For the living, there may also be some curiosity about whether it’s possible to inherit cryptocurrency from a deceased relative.

But first, a disclaimer! This is not financial advice. Please consult professional financial and legal advice to understand the risks involved. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

Got it? Ok...

Can you inherit cryptocurrency? Even without a private key?

If you're looking to inherit crypto held in a deceased person's wallet, whether it’s an offline (cold) or online (hot) wallet, it’s important to know the private key.

In short, the private key is like a password; a cryptographically generated code that grants access to your crypto. There is also a “seed phrase”, a human-readable representation of a private key that consists of 12, 18, or 24 words generated by your cryptocurrency wallet that stores all the information needed to recover cryptocurrency funds. 

Without the key or seed phrase, a deceased person's cryptocurrency will be inaccessible and remain lost on the blockchain. Just like a password, however, you shouldn’t tell people your private key or seed phrase unless you wish to give them total access to your portfolio.

You may have heard the remarkable story of Gerald Cotten, a cryptocurrency trader who died suddenly aged 30, leaving up to US$190 million worth of his clients’ crypto permanently locked in inaccessible offline wallets.

Owners of crypto assets who die without a Will or an available private key may create a similar predicament behind, leaving their beneficiaries unable to get their hands on the cryptocurrency.

Can you access a deceased family member's coin exchange account?

If the cryptocurrency is in a coin exchange, rather than a wallet, things may be a little easier (if not less secure). 

If you hold your crypto on an internet-based coin exchange, like Binance or Coinbase, you don't actually own your private keys – they do. When obtaining a deceased person's account, you are effectively relying on that company to hand over the crypto.

Coinbase, a cryptocurrency exchange and provider of wallets, has created a protocol allowing the transfer of an account in the event of death.

However, the responsibility lies with the account holder and beneficiaries need a few things to obtain the assets: the person’s death certificate, their latest Will and Testament, and/or Probate Documents, plus a signed letter by the person named in the Probate Documents instructing Coinbase on what to do with the balance of the Coinbase account.

If a person doesn’t mention their crypto assets in their will, it’s very unlikely you’ll be able to obtain them legally.

Do you get taxed on inherited cryptocurrency?

Just like any asset, like stocks or gold, Bitcoin, Ether, and other cryptocurrencies can be subject to tax. However, most countries have still not fully got to grips with the intangible qualities of digital assets and the law can be relatively hazy in places. 

The UK recently laid out a policy paper called “Cryptoassets: tax for individuals” stating cryptocurrencies can be subject to inheritance tax and capital gains tax. 

The Internal Revenue Service (IRS) in the US also considers cryptocurrency holdings to be “property” for tax purposes, meaning your virtual currency is taxed in the same way as any other assets you own.

However, different countries have different rules – and different loopholes. In the UK, for instance, crypto assets left to a married partner will benefit from 100 percent Inheritance Tax relief, provided the surviving spouse is a permanent UK resident.

So, if you’re looking for particular exemptions, it’s best to check laws in your jurisdiction – and, if in doubt, seek legal advice.