Crypto legacies: key questions for UK charities (Part 2)

24 October 2022 | Applicable law: England and Wales

Part 2: what to do when your charity benefits from an estate containing crypto assets

Our previous article considered the steps UK charities can take when a donor approaches the charity in their lifetime asking about how to leave the charity crypto assets in their will. The alternative scenario is that your charity is named as a beneficiary of an estate which is thought to hold crypto assets.

With any luck, your benefactor will have chosen an executor with the ability to administer an estate containing such assets and given them an inventory of digital assets and an access plan, ie a list of passwords and private keys, to enable them to identify and access the estate’s holding. But this may not be the case. Many testators have security concerns with giving access plans or simply never got around to it. And, as discussed below, some tokens will require an expert to decipher their characteristics and assist with collecting them in, irrespective of the executor’s expertise.

So, what can you expect from your executor?

If there is no inventory of digital assets or access plan, but perhaps the will refers to crypto assets or your benefactor’s family are convinced that they held crypto assets, a professional can be brought in to do a sweep of your benefactor’s computer for any wallets or passwords / private keys. It is worth bearing in mind that accessing a deceased person’s computer without specific authority may arguably be a breach of section 1 of the Computer Misuse Act 1990 but, if they left the executor or a friend or family member the password, that should be ok.

Another initial step could be for the executor to approach the most well-known exchanges. Many centralised cryptocurrency exchanges, such as Coinbase, carry out KYC (know your client) on their account holders so, although a public key is largely anonymous, an exchange should be able to assist you in identifying whether your benefactor had any holdings with them.

It is worth ensuring that the executor is thinking beyond basic cryptocurrencies. There are numerous different types of tokens, some giving real world benefits, others giving voting rights. But most will have value.

But it is not just the value of crypto assets which needs to be considered; executors will need to consider related liabilities and restrictions as well. Through decentralised finance (DeFi), your benefactor may have entered into crypto swap arrangements, staked their holdings in return for interest or borrowed crypto assets which will need to be returned at some point in the future. The terms on which your benefactor held their crypto assets may be found in separate documentation and/or in the related blockchain’s code, and the average executor will need an expert to explain these terms.

Once the executor has identified and gained control of the estate’s crypto assets, the next step may be for you to decide whether you want the executor to transfer them to your charity as a crypto asset or sell them and transfer the value to you in your local currency.

If choosing to receive the crypto assets in specie, charity trustees will need to determine that receiving the crypto assets in this way is in the best interests of the charity, and they should ensure that they are sufficiently informed about the issues at hand and have considered the potential risks. A fuller explanation of the considerations that charity trustees should be alive to when accepting crypto assets, including the practical need to set up a crypto wallet and have relevant policies in place, is discussed in our previous article.

If the executor is to sell the estate’s crypto assets, the process will depend on the type of tokens held in the estate. If the crypto asset can be sold through an exchange, the process may be relatively simple. However, as mentioned above, all tokens are not necessarily analogous to cash or stocks and shares. Unless the executor understands the token, it will be very difficult to value it. And as with real world start-ups, if your benefactor was a token founder, there may be restrictions on their holding such that their executor cannot sell them for a defined period or may only be permitted to sell them to other holders of the token. Again, the terms of a token can usually be found on the token provider’s website and/or in its related blockchain’s code, but the average executor will need to instruct an expert to explain these terms.

But what if your executor is not taking such steps?

The executor may feel that there is insufficient reason to believe that the estate holds crypto assets such that the cost of investigations would be unwarranted or there may be a difference of opinion between the beneficiaries such that the class does not stand together. If so, you could indemnify the executor for the cost of initial investigations should they not bear fruit or, perhaps preferably, ask the executor to assign the estate’s interest in any crypto assets to your charity so that you can engage someone to carry out initial enquiries. As the law stands, the “reasonable person” standard is likely to apply to whether or not an executor is in breach of duty for not carrying out investigations. An executor would not be expected to access and review all the decedent’s possible data storage devices accumulated during a lifetime if the evidence to suggest that your benefactor held crypto assets is limited.

If the executor is shying away from taking the above steps because of a lack of expertise, you may wish to consider applying to remove the executor in favour of an administrator who has the necessary expertise to administer the crypto assets in the estate.

What if the executor’s conduct, or lack thereof, results in loss?

An executor administering an estate holding crypto assets is unlikely to held to a lower standard of care because the asset class is new and complex. Therefore, if the executor’s conduct, or lack thereof, causes loss to the estate and would constitute a breach of their fiduciary duties, a negligence claim should be considered.

Cryptocurrency and other crypto assets offer new fundraising opportunities for charities. Charities should ensure they are fully aware of the implications of being a beneficiary under the will of a deceased benefactor and understand what to expect from the executor.

If you have any questions on this topic, please do get in touch.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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