Part 1: Planning for future crypto legacies
As the prevalence of cryptocurrency grows, the incidence of donors wishing to give this type of asset either in lifetime or on death to charity is similarly increasing – or at least being considered. There are two scenarios for charities that may be a beneficiary of a cryptocurrency legacy in a will to consider. Firstly, where a donor approaches the charity in their lifetime asking about how to leave the charity cryptocurrency assets in their will; and secondly where the charity is named as a beneficiary of an estate which is thought to hold crypto assets.
The first question is simple: is your charity prepared to accept cryptocurrency legacies?
Charity trustees have a duty when making decisions to act in the interests of the charity, to ensure that they are sufficiently informed about the issues at hand (including taking appropriate professional advice), to take into account all relevant factors (and discount irrelevant ones). The Charity Commission has advised that it wishes to “help promote innovation in charities” but also requires charities to be alive to the risks that crypto assets may pose.
The decision whether to accept legacies in cryptocurrency may be informed by your charity’s purposes and activities. For example, certain environmental charities are reported as being wary of (and have been subject to criticism for engaging with) crypto assets such as NFTs (Non-Fungible Tokens) and cryptocurrency, due to the high energy consumption required to manage transactions and in ‘mining’ new coins (although it should be noted that this environmental impact varies between different cryptocurrencies). Even charities that are not established for the protection of the environment will still have an interest in sustainability. The decision whether to accept crypto legacies may also be informed by the charity’s appetite for, and approach to, risk: both reputational and financial.
Once the trustees have determined whether or not they are prepared to accept crypto assets as legacies, they should consider putting in place a policy outlining the charity’s approach where this type of asset is involved. As part of this, the trustees will need to consider whether the charity is comfortable with accepting crypto legacies in specie or if they will wish to engage with a platform that offers the ability to exchange crypto assets for fiat money (‘fiat’ money refers to government-backed currency that is not backed by any commodity, such as GBP or USD). The Giving Block is an example of such a platform that offers to convert crypto legacies into USD for a fee. This is important to consider in terms of financial planning for the charity but also in terms of the charity’s capacity to undertake management of the assets it holds (or if it can afford to outsource such management).
Cryptocurrency is generally considered to be a volatile asset, and charity trustees should consider whether the charity has the relevant experience and capacity to manage crypto assets, and what the implications of holding such assets (such as tax treatment for example) may be. There is also an elevated risk of charities being the subject of cyber-attacks if they hold crypto assets (as they are a target for cyber crime) and a risk that crypto assets, like legacies of other asset types could be derived from the proceeds of crime. Depending on how the trustees decide to accept crypto legacies, the donor should be advised of the charity’s approach so that, as far as possible, this can be accommodated in the will.
The wallet is a piece of software that will store the passkeys used to sign for your cryptocurrency transactions, provides the interface to allow access to your cryptocurrency, and makes the Blockchain accessible. Wallets offer both a private key (for the charity alone to manage assets in the wallet) and a public key, which is what will allow donors to complete the transfer of crypto assets to the charity.
It is crucial that passkeys to any crypto assets are securely managed: there are multiple stories of cryptocurrency investors who are locked out of their wallets (and therefore unable to access their highly-valuable crypto assets) as they have forgotten or lost their passkey.
In many ways, accepting legacies in cryptocurrency (or other crypto assets) requires the trustees to consider the same factors as they do with any other type of ordinary legacy, such as undertaking appropriate donor due diligence (or Know Your Donor) checks. While this may seem straightforward, one of the issues with Blockchain (which is a shared, digital record that tracks the exchange of assets) is that it enables owner security and anonymity. Charities may therefore not be able to determine who the owner of the asset is. Where a donor approaches the charity in their lifetime asking about how to leave the charity cryptocurrency assets in their will – the issue of donor due diligence can be satisfied while engaging with the donor; however, this does not guarantee that the donor of the assets is the recorded owner in the Blockchain. The other check that charity trustees should consider is what can be determined about the crypto asset itself – most charity trustees will be more familiar dealing with legacies of cash, shares, or property, and crypto assets are very much an emerging market.
There are services available that can check the providence of crypto assets to ensure that previous owners did not acquire them as proceeds of crime: however, the charity will need to consider the cost/ benefit of expending funds on these services for every crypto legacy. The advantage of this first scenario, where the charity is approached while the testator is living, is that it gives the charity time and space to determine its plan for crypto legacies. Charity trustees should also consider having a section in their crypto legacies policy that addresses issues such as refunds / returns and anonymous legacies; as with a cash legacy, anonymity of the donor is not fatal, but trustees should consider how they wish to manage this risk (for example, having a value threshold for anonymous legacies).
Charity trustees should be aware that while the current iteration of the Code of Fundraising Practice does not contain explicit references to cryptocurrency (although digital fundraising is covered) the Fundraising Regulator’s strategic plan for 2022-2027 acknowledges that the next version of the Code will consider fundraising in the “digital context” of crypto legacies, blockchain, and even AI. This does not mean that the Code is not currently applicable to crypto legacies, and section 15 (specifically addressing legacies) must be adhered to.
Trustees should carefully consider the benefits and risks as they decide whether to accept legacies of cryptocurrency. In part II, we consider where the charity is named as a beneficiary of an estate which is thought to hold crypto assets, what you can expect from the executor.
If you have any questions on this topic, please do get in touch.