Digital finance: a guide to virtual inheritance

Digital finance:

a guide to virtual inheritance

Verity Kirby, Private Client partner at law firm, Shakespeare Martineau

As technology and the digital world continue to develop, people are finding more ways to invest their money through online channels. From cryptocurrency to stocks and shares apps on mobiles, the world of investing is now quite literally in the hands of the people. Although digital assets such as cryptocurrency are largely used by the younger generations, being prepared for what happens to your assets and investments after death is essential at any age. So, what happens to digital assets should the worst happen and what measures need to be taken to ensure loved ones receive their digital inheritance?

Although people often consider themselves to be the owners of their digital assets, spending money on the purchase of books, music and films does not constitute true ownership. Instead, the costs associated with the purchases are instead for the licence to access and use the assets. The rights to use the assets are often limited to one account and may only be used through the third-party, for example, saved songs on Apple Music. As there is no full ownership of these assets, they are unable to be gifted and cannot be left to loved ones in a will. However, a permanent copy of the file which has been downloaded to a device would be considered owned and is therefore an exception to the gifting rules.

To ensure the correct distribution of an estate, spending time with a legal expert when planning a will is essential. Without having an adequate plan in place there is a risk that the assets will not be shared according to the wishes of the deceased. Seeking legal advice when planning a will not only ensures assets will be shared as desired, but also reduces the risk of implications for loved ones should the gifts not be considered part of the will.

So, what can be gifted to loved ones? Assets such as cryptocurrency, stocks and shares ISA’s, digital content stored on a computer hard drive, transferable domains and online gaming goods such as character skins or additional game play packs are all eligible to be left in a will. Funds unpaid to the individual by an online store or payment platform such as Etsy or PayPal, gambling account balances and monetised YouTube videos may also be included in a will. However, social media pages, email accounts or subscriptions such as Spotify or Netflix cannot be included in a will.

The most obvious pitfall to leaving digital assets such as cryptocurrency to loved ones is the risk in fluctuating value. As the tokens become more or less valuable by the hour, there is no guarantee that what is being left will be worth any money at all. This becomes more of a challenge when loved ones are faced with the tax implications of the assets; potentially leaving them with no money left over to enjoy after paying tax on the gift.

The next pitfall that needs to be considered when leaving digital assets is accessibility. Not everyone shares the same

knowledge of digital assets and not everyone will know what to do with their gifts beyond simply receiving them. It may be wise to consider leaving digital investments or assets to someone who knows how to utilise them, or if possible, withdraw the investments to be passed on in a hassle-free manner.

It is not uncommon for people to leave parts of their inheritance to charities that may have resonated with them throughout life. Although appreciated, most charities in the UK are unlikely to accept a donation in the form of a digital asset just yet. As different forms of cryptocurrency follow different rules, charities may find themselves facing the unforeseen tax implications of these digital tokens. There is no sure way to know what the tax rules will be around donations to charities, as HM Revenue and Customs guidance is constantly changing to keep up with the shifting digital landscape of investment, therefore legal advice should be sought. Despite only a small number of charities accepting cryptocurrency donations such as UNICEF, Save The Children, and the Children’s Heart Unit Fund, it would be unsurprising to see more charities with the ability to welcome donations in a digital form in the near future.

Before deciding what assets to leave in a will, it is essential the terms and conditions of each are read. Monetised accounts, media subscriptions and cryptocurrency all have different limitations as to how or if they can be gifted. Different providers will have guides as to what happens to the account after the holder’s death, which will be key to ensuring nothing in the will is left to chance. Another important aspect to this is making the assets accessible for loved ones. Cryptocurrency is usually left in accounts that gain or lose value with little involvement with the owner after deposit. Furthermore, to allow loved ones to gain access to the tokens, a list of usernames and passwords will need to be provided, and it may be wise to consider appointing a digital executor to deal with any virtual assets included in the will. To reduce the risk of hacking, passwords need to be kept safe and accessible only to a chosen beneficiary.

Leaving digital assets to loved ones in a will can be a thoughtful gift for the right person. Some may appreciate the sentiment, others may prefer physical assets or cash, but whatever is included in a last will and testament, there are essential measures to take to ensure your gifts are received. Preparing for what happens next may be a topic many wish to avoid, but storing passwords, extracting funds, and knowing exactly what can and can’t go into a will is a step in the right direction.