ince cryptocurrency is a relatively new phenomenon, there is still much debate surrounding its regulation. As the popularity of virtual currency grows, so too does the issue of what to do with it when it becomes abandoned or unclaimed.
In some cases, abandoned or unclaimed cryptocurrency may be turned over to the state, making it difficult to retrieve. For this reason, it’s important to not only keep track of your cryptocurrency accounts, but also to keep up with any changes in the law that could affect your holdings.
Here’s a look at how most states are handling abandoned cryptocurrency and how those laws could affect both cryptocurrency owners and their heirs or beneficiaries.
What is Cryptocurrency?
Cryptocurrency is a type of virtual currency that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrency is decentralized, meaning it is not subject to control or manipulation by governments or financial institutions. The first and most well-known cryptocurrency, Bitcoin, was created in 2009 and was followed by a hundreds of other digital currencies.
With the rise of Bitcoin and other cryptocurrencies, some states have begun to create and implement unclaimed property laws regarding the regulation of abandoned or unclaimed cryptocurrency. But because the concept of this intangible property is still relatively new, it’s not yet regulated in all states.
Laws Regarding Unclaimed Cryptocurrency
Currently, there is no federal law governing abandoned or unclaimed cryptocurrency. This means that each state has the ability to create its own laws regarding this issue. Some states, such as California and Florida, have already enacted such laws, while other states, like Texas and New York, are currently working on drafting similar legislation.
But what about the states that don’t have relevant laws in place? One possible outcome is that unclaimed cryptocurrency would be treated the same as other types of unclaimed property, such as unclaimed stocks or bank accounts. This would mean that the state would hold onto the currency until the owner or their heirs claim it.
For example, the state of Illinois has yet to put a law in place that deals with unclaimed cryptocurrency specifically, but its existing unclaimed property laws could potentially be applied to abandoned or unclaimed digital currency.
Many argue, however, that cryptocurrency should be subject to different rules due to its unique nature, which is why many states have already taken action on this issue. As of now, about half of the states have unclaimed property laws that specifically mention cryptocurrency, or they are working on them. For instance:
- In 2018, Washington state passed a law that requires crypto exchanges to report abandoned or unclaimed digital currency to the state’s Department of Financial Institutions. The department would then be responsible for holding onto the currency and returning it to the owner or their heirs. This law is intended to help protect consumers and ensure that they do not lose access to their currency.
- Colorado updated its unclaimed property law to include cryptocurrencies back in 2017.
- The Illinois General Assembly is currently reviewing House Bill 4573, filed in February 2018. If passed, it would amend the state’s unclaimed property law to require cryptocurrency holders to report it as unclaimed property if the owner can not be located.
- Similar or identical bills have been filed in Kentucky and Tennessee as well.
Unclaimed cryptocurrency laws are evolving quickly and can vary widely from state to state. In California, the owner of abandoned or unclaimed cryptocurrency has three years to claim it before the state takes possession of it, whereas in Florida, the owner has five years to claim the cryptocurrency before it escheats to the state. The key takeaway here is to be aware of the laws that affect your situation.
The Potential Implications of Unclaimed Cryptocurrency Laws
Cryptocurrency owners should be aware of the potential implications of their state’s unclaimed property laws, as it could affect both the owner and their heirs or beneficiaries. For example, if a person dies without leaving behind clear instructions on what to do with their digital currency, it is possible that the currency could be classified as abandoned and subject to unclaimed property laws.
This could mean that the owner’s heirs may not be able to access their deceased loved one’s digital currency unless they go through the process of claiming the currency from the state. This could be a time-consuming and costly process.
As such, it is important for those who own cryptocurrency to plan ahead and make sure that their loved ones know what to do with their digital currency in the event of their death. In some cases, it may be possible for owners to avoid having their cryptocurrency classified as unclaimed property. For example, if an owner dies and their cryptocurrency is held in a trust, the currency may not be subject to unclaimed property laws.
The Process of Claiming Unclaimed Cryptocurrency
In states where the abandoned cryptocurrency laws (or lack thereof) cause unclaimed cryptocurrencies to be treated the same as other types of unclaimed property, the cryptocurrency owner has the right to reclaim it from the state. However, if the owner does not claim the cryptocurrency within a certain period of time, then the state may take possession of it according to that state’s escheatment laws.
As any crypto owner knows, the most important thing is keeping track of private keys. Private keys are necessary to access cryptocurrency wallets, and without them, the cryptocurrency could be effectively lost, regardless of whether or not the wallet has been flagged as abandoned.
Anytime a person’s cryptocurrency is subject to a state’s unclaimed property laws, the process of claiming it from the state can be time-consuming and expensive for the owner, not to mention for heirs and beneficiaries who may need to go through a lengthy legal process.
Although these laws only apply to abandoned or unclaimed crypto assets, it’s worth noting that if an owner dies without leaving behind access instructions and secret keys for their cryptocurrency wallets or accounts, then those assets will soon become abandoned and unclaimed regardless of the owner’s intention.
If those who own cryptocurrency don’t want those assets at risk of being lost to the state forever, it’s imperative to plan ahead and make sure that their loved ones know how to access their digital currency (and what to do with it) in the event of their death. Doing so will ensure that your heirs or beneficiaries will be able to claim your cryptocurrency in accordance with your wishes.
The Bottom Line
The issue of unclaimed or abandoned cryptocurrency is still unresolved in many states, leaving many to wonder how abandoned or unclaimed digital currency will be dealt with in their state.
As the legal landscape surrounding digital currency continues to evolve, those who own cryptocurrency should be aware of any laws in their state regarding unclaimed property, as well as how those laws could affect the loved ones they leave behind.
As more and more people invest in digital currency, it is likely that states will continue to adapt their unclaimed property laws to better deal with this new type of property. In the meantime, it may be wise for those who own or inherit digital currency should consult with an attorney to ensure that their currency is properly protected.