Technology keeps evolving and changing. Emerging technology brings innovation and enhances our daily lives. In fact, it’s so innovative that it’s disrupting entire industries and changing the way we live. The legal industry is one of them and could affect how we plan our estate and pass down assets.
The main technologies affecting this are blockchain and smart contracts. But what is blockchain? What are smart contracts? How could blockchain make lives easier for families? Can wills be written onto a blockchain? Are there problems with doing this?
What is blockchain?
Blockchain is a comprehensive, up-to-date, digital ledger system that can record financial transactions to ownership of physical assets. Every record is encrypted and time stamped. What makes blockchain so useful is the immutability, transparency and decentralisation of it. The data stored cannot be changed or deleted.
What are smart contracts?
Smart contracts are a form of software programmes embedded onto blockchains that can receive and send assets and information. Smart contracts are often automated or self-executing. The Law Commission has referred to smart contracts as ‘the technology which runs on blockchain and by which legal contracts may be executed automatically’.
How could blockchain make lives easier for families?
Lots of people talk about the financial uses of blockchain and smart contracts, which has been dominating the media. But blockchain could have potential for other useful applications. Estate planning and electronic wills are some of them.
The short answer is that wills can be written onto a blockchain. Electronic wills on a blockchain, also known as ‘cryptowills’, are already being created.
People are accumulating a lot of digital wealth these days which can be lost forever after the key holder dies. The reason for this is due to the secure nature of the blockchain which makes it inaccessible by anyone except the key holder. If the key holder dies without sharing their private key, their assets on the blockchain cannot be retrieved.
Therefore one solution to this is to write your will onto the blockchain which could be automatically executed via smart contracts. The testator can list their assets and private key on their will but this wouldn’t be accessible to anyone except the beneficiaries. This makes it much safer and secure than a traditional paper will, which could get lost or tampered with. Safe Haven, for example, gives users the opportunity to secure digital assets so that the investor’s legacy can be passed down to their beneficiaries safely and securely.
This technology eliminates lengthy court battles arguing over digital inheritance.
Are there problems with this?
Smart contracts and blockchain are a new concept and the development of these will challenge some established legal rules including for example, interpretation.
Another key issue is the enforceability. It’s arguable whether a cryptowill complies with section 9 of the Wills Act. Wills have to be in writing, must be signed by the testator and there must be two witnesses. Will an electronic signature suffice for a cryptowill? How will witnesses attest the testator’s signature?
Further issues arise with inheritance tax (IHT) and challenging a cryptowill. The UK has a 40% inheritance tax rate, but how would HMRC receive this? What would HMRC be willing to accept as a form of tax payment?
These questions have yet to be answered as the law in many countries worldwide (including the UK) still do not accept a will on the blockchain as a legitimate legal document. But as this technology develops and becomes more and more tested, it won’t be long before we see wills on the blockchain become mainstream.