[Anenya is a student at Hidayatullah National Law University.]
In the race to dominate the digital world, do people pause to consider what happens to their legacy once they are dead? Do digital assets affect the legacy they leave behind? Digital assets, defined as property stored electronically that can be bought, sold, owned, transferred, or traded, are an essential part of modern wealth. One prominent example is cryptocurrency, which serves as the best example of wealth ownership in the digital space. As digital wealth continues to grow, the inheritance of cryptocurrencies presents a distinct set of challenges and considerations compared to traditional assets. A recent survey in the United States revealed that 63% of cryptocurrency holders lack a digital will, leaving their beneficiaries deprived of thousands of dollars. This laxity by these holders highlights the critical need for digital estate planning, which ensures clarity of ownership and access rights in the digital afterlife. This issue is not limited to individuals—companies such as Tesla and MicroStrategy have emphasised future planning as a significant reason for incorporating Bitcoin into their balance sheets. Therefore, safeguarding one's digital legacy through proper understanding and implementation of digital estate planning is crucial and hence the acknowledgment and adoption of digital wills take on crucial importance in this context.
The Digital Legacy Protocol: From Blockchain to Inheritance
Blockchain technology has revolutionized property transactions by introducing a decentralized digital ledger. This system facilitates transactions between multiple parties without relying on a central authority, enabling automated ownership and title management. Such transparent data handling streamlines the process of buying and selling digital assets, as transactions become faster and are securely stored as permanent records. These transactions are subsequently verified and organised into blocks. Cryptocurrency is a digital store of value that exists on the blockchain as encrypted codes organised into such blocks. Through the process of tokenizing currency, cryptocurrency owners can engage in activities such as investing, making payments, and funding projects. Digital assets such as cryptocurrency are created or minted when new information is added to a blockchain. These assets can then be stored in digital wallets, which provide exclusive access to the owner. It is pertinent to note that while the digital asset itself is stored on the blockchain ledger, the keys required to access it are stored in the wallet.
Digital asset management requires a highly nuanced approach, particularly with cryptocurrency. While blockchain, as a decentralised technology, facilitates seamless transactions, it raises concerns about the existence of these codes as independent keys without direct owner access. Transactions involving multiple parties can lead to issues such as incorrect wallet addresses or network congestion, potentially resulting in the loss of access to keys and rendering these assets irretrievable. It is suggested that digital wills present a practical solution by ensuring that trusted heirs gain access to these keys without exposing them during the owner’s lifetime. This approach also addresses the challenge of retrieving cryptocurrency by providing specific instructions for managing the assets. Additionally, they can reduce disputes and legal complexities in inheritance while protecting assets from cyber-attacks after the owner’s demise. However, a significant concern lies in the compliance and adaptability of such solutions within existing legal frameworks. This underscores the importance of examining the intersection of cryptocurrency laws and inheritance regulations.
The Legal Labyrinth: Cryptocurrency and Inheritance Law
A will or testament (Section 2(h) of the Indian Succession Act 1925) is a legal instrument through which a property owner disposes of their assets in anticipation of their death. Inheritance through a will involves the transfer of assets to heirs through such a legal document. The practice of transferring a person’s assets, debts, titles, rights, and obligations through wills has long been established across legal systems governing inheritance laws. Where there is a will, inheritance laws are inherently applicable.
Documenting the location of such digital assets in legal papers is almost impossible. Beneficiaries, upon receiving their share, would likely need to convert the cryptocurrency into fiat currency, as a clear distribution cannot be achieved without specifying actual values. This conversion would likely trigger a taxable event, requiring beneficiaries to calculate capital gains or losses. Several other issues, such as the executor’s lack of expertise and regulatory uncertainty, make traditional paper wills an impractical method for allocating cryptocurrency. Drafting a will in this manner can hence be a tedious process, as it would require specifically mentioning the crypto wallet and its location. Hence, in such cases, paper wills prove ineffective, giving rise to the increasingly recognised concept of electronic wills (“e-wills”). These are largely similar to traditional wills but rely on digital signatures, making them more convenient, cost-effective, and easily transmissible online. There has been limited development of common law on cryptocurrency inheritance and thus, questions such as how the tax burden should be allocated among beneficiaries, the order in which assets should be distributed, whether these assets can be used to settle debts, or what happens if a beneficiary predeceases the testator lack clear answers. Cryptocurrencies often lack a clear paper trail and are typically not formally listed in conventional records. Additionally, the fact that cryptocurrencies largely operate outside the traditional financial infrastructure further complicates their integration into the current estate planning processes. Therefore, the existing framework for creating wills does not fully accommodate the inclusion of cryptocurrency.
India does not explicitly prohibit the inheritance of cryptocurrency. However, the lack of a robust legal framework for the transfer of digital assets poses significant challenges. Numerous websites offer guidance on preserving digital legacies and ensuring they can be passed on to intended beneficiaries within the current framework. Despite this, these approaches lack legal backing and assurance because suggestions such as creating inventories, explicitly mentioning digital assets in wills, or appointing a digital executor are often adaptations of traditional methods used for non-digital asset inheritance. Moreover, these methods, which are not legally standardized, fall short in scenarios such as sudden death, age-related illnesses, or the loss of critical information required to access digital assets. In India, a recent ruling by the Income Tax Appellate Tribunal in Jodhpur affirmed that cryptocurrencies are to be recognised as assets, with profits from their sale classified as capital gains rather than income from other sources.
Personal inheritance laws, such as the Hindu Succession Act 1956 and Muslim personal laws, may apply in this context but there remains significant legal uncertainty regarding the transfer of such assets to heirs. While appointing custodians and executors may assist in managing these decisions, the absence of a robust legal framework discourages practitioners from taking on such uncertain responsibilities. Inheritance laws in India do not provide a specific definition of “property” and instead limit their scope to certain types of property with physical attributes, including movable property. The Transfer of Property Act 1882 does not expressly recognize cryptocurrency as “property” or “goods,” as it is primarily concerned with traditional forms of property such as land, buildings, and tangible assets. However, cryptocurrency has been recognized as a virtual digital asset. Virtual assets can be digitally traded, transferred, or used for payments, offering a quicker and easier method based on blockchain technology. This highlights the need for a legal definition of cryptocurrency and digital wills within Indian inheritance laws.
With over 2 crore crypto users in India, 75% of whom are under the age of 34, this is an opportune moment to enhance and develop inheritance laws addressing cryptocurrency. Even countries such as Russia and New Zealand have taken significant steps by recognizing cryptocurrency as property, highlighting the importance for every state to prioritize the development of laws in this area. Such regulations would make cryptocurrency ownership more secure and practical. Bitcoin’s historic rise to $100,000 in 2024 signals that future generations stand to benefit significantly – provided this digital wealth can be securely and efficiently passed on to them.
Crypto Wills 2.0: Blockchain Challenges and Solutions
Blockchain-based inheritance management systems can streamline the inheritance of cryptocurrency by utilizing smart contracts, multi-signature authentication, and decentralized management solutions. Smart contracts, already a core component of blockchain technology, can automate inheritance agreements, ensuring efficient and reliable execution. Multi-signature authentication, another blockchain-based decentralized identity management solution, can also be employed in digital asset inheritance. In the UK, electronic wills on blockchain, also known as crypto wills, are already being developed. They also address one of cryptocurrency’s most significant challenges—volatility. The rapid fluctuations in value can complicate traditional wills, making asset valuation and beneficiary shares uncertain. Smart contracts simplify this process while bypassing outdated legal frameworks, offering cross-border compatibility for seamless asset transfers across jurisdictions. With the growing recognition of cryptocurrency and blockchain technology, as well as smart contracts, by authorities such as the UK Law Commission, innovative solutions are emerging. For example, Trakti, a London-based software company, is the first end-to-end contract automation platform to embed smart contracts on blockchain. Such platforms can automate and self-execute processes such as testamentary dispositions, reducing the need for costly and time-consuming court battles over digital inheritance.
Smart contracts in India are a potential legal reality. While no explicit laws currently recognise their existence, provisions in statutes such as the Indian Contract Act 1872, the Evidence Act 1872, and the Information Technology Act 2000 (IT Act) can be applied to regulate them. The IT Act establishes the validity and enforceability of digital contracts (Section 10A), though it presents a limitation in mandating digital or electronic signatures certified by a government-authorised authority. This issue could be resolved if cryptocurrencies gain recognition under inheritance laws. The Evidence Act, under Section 65B, also recognises digital contracts as valid and enforceable in courts. Cryptocurrency inheritance under the proposed blockchain model depends on accepting its digitally transferable nature. Section 2(47AA) of the Income-tax Act 1961 supports this by encompassing information, code, numbers, or tokens generated via cryptographic means, thus categorizing all crypto assets as virtual digital assets. This creates a viable foundation for amendments to enable blockchain-based digital wills. Cryptocurrencies also hold the taxable status of property, which can be inherited under Indian inheritance laws. However, the core challenge lies in legally recognizing “digital wills” under succession laws. Explicit acknowledgment of blockchain technology in this context is essential. It would necessitate supplementary changes, such as amendments in technology laws and laws regarding resolution of disputes regarding wills etc. Most importantly it becomes imperative to raise public awareness about the benefits and legality of blockchain-based wills, potentially including incentives like reduced registration fees for early adopters.
The NITI Aayog’s report, “Blockchain: The India Strategy”, focuses on the role of the government in promoting decentralized networks. It shows how blockchain, as a peer-to-peer decentralized network, can make transactions easier and remove unnecessary friction. The report aims to educate stakeholders across sectors, demystify blockchain concepts, and explore its potential for creating transparent and cooperative models, aligning with the objectives of this discussion. Furthermore, not reporting cryptocurrency gains is an offence under the Prevention of Money Laundering Act 2002, requiring all crypto transactions to be recorded in taxpayers’ returns. Hence, again stressing that crypto assets are akin to property in India and fall under the purview of inheritance law. Even though the cryptocurrency has not yet obtained the status of legal tender, considering its position as assets will provide a significant building block for including them in an overarching legal framework for blockchain wills.
However, the potential drawbacks of such technological advancements in the legal field cannot be overlooked. One significant concern is the inability to revoke a will once it is executed through smart contracts. Due to the immutable nature of blockchain, once a smart contract is placed on it, it cannot be deleted or modified. In such cases, it is suggested that a proxy contract can be created that references the will, allowing for updates or redirection to a new will without altering the blockchain’s history. Additionally, a complete detachment from traditional law would not be ideal. It is essential for laws regarding the appointment of a testator to also involve professionals in cryptography and technology law to assist individuals in making informed decisions for the disposition of digital assets. Furthermore, smart contracts can be designed with versions that utilise oracles to verify external events, enabling the breakdown of automated execution. Laws can also introduce blockchain-based notaries to validate and approve revocation requests. The most critical aspect is the development of user-friendly blockchain platforms that allow individuals to create, update, and revoke wills without requiring complex technical expertise.
Conclusion
The inclusion of blockchain into inheritance planning represents a paradigm shift with regards to an amalgamation of law and technology. With such issues arising concerning the cryptocurrency estate, it becomes a necessity for the legal systems governing jurisdictions to develop sound laws in harmony with the decentralized structure of blockchain. Smart contracts and crypto wills are said to bring efficiency and security into the process; however, further calibration may be necessary to achieve flexibility and equity into the process. The only way is to develop the best practices of the blend of conventional inheritance laws and blockchain options to make them more accessible but not less legal. If lawmakers execute their part in conjunction with technologists and fiduciaries, the transfer of a clean and fair digital estate can be achieved.
Comments