SARS is hitting South African estates with penalties, additional assessments, and delays

South Africans with cryptocurrency, online businesses and other digital assets could leave their estates facing penalties, additional assessments and delays if these assets are not properly disclosed after their death.

Modern estates include cryptocurrencies, non-fungible tokens (NFTs), domain names, social media accounts, cloud storage and monetised online businesses.

These assets can form a large part of a person’s wealth, but they can be much harder for an executor to find and access than physical assets.

This is according to DBM Attorneys, which warned that digital assets require specific estate planning to avoid administrative and tax problems.

The South African Revenue Service (SARS) does not provide special treatment for digital assets when administering a deceased estate.

Cryptocurrency, valuable domain names and other digital property must be identified and included in the estate inventory.

The fair market value of these assets at the date of death forms part of the estate’s net value. This can create challenges where an asset, such as cryptocurrency, changes significantly in value.

DBM Attorneys stressed that executors must carefully determine and document the value of digital assets using reputable exchange data, professional valuations or other supporting evidence.

Executors also need to consider the tax consequences of transactions involving digital assets.

If assets are missed, incorrectly valued or not properly accounted for, the estate could face problems with SARS. This may include penalties, additional assessments and delays in finalising the estate.

Managing these assets is particularly important now because SARS is increasingly scrutinising cryptocurrency transactions and their interaction with the traditional banking system.

This makes it important for executors to identify digital holdings rather than assuming that an estate consists only of physical property, bank accounts, and investments.

Managing estates with digital assets

Digital assets include websites, domain names, cryptocurrency, email accounts, cloud storage, social media profiles and online businesses.

A YouTube channel, e-commerce business, or subscription platform may continue to generate revenue after its owner dies.

This creates another responsibility for the executor, who may need to preserve the asset, manage the income and determine how it should be transferred.

However, not every online account is necessarily transferable. A domain name, intellectual property or business interest may form part of the estate.

Meanwhile, a software licence, a streaming account, or social media profiles may be personal and terminate upon the user’s death.

The platform’s terms of service will determine what can be transferred and how access can be obtained.

Many platforms require a death certificate, letters of executorship and other documents before considering requests relating to a deceased user’s account.

DBM said a dedicated digital assets clause in a will can give the executor authority to manage, preserve, transfer, or close digital accounts and assets where legally permitted.

Executors should not simply use a deceased person’s passwords to impersonate them or bypass a platform’s procedures. Access should be obtained through the relevant legal and contractual processes.

Maintaining an updated inventory can also reduce delays. This should identify digital assets, accounts, devices, usernames, where the assets are held and practical instructions for dealing with them.

The inventory needs to be stored securely and updated when new assets are acquired or security arrangements change.

Cryptocurrency and AI-generated assets

DBM said one of the biggest problems with cryptocurrency is that ownership and access often depend on private keys, passwords and seed phrases.

Unlike a conventional bank account, there may not be a central institution that can simply restore access if these credentials are lost.

As a result, cryptocurrency held in a private wallet could become permanently inaccessible after the owner dies.

Where crypto is held through a centralised exchange, recovery may be possible through that platform’s deceased-estate procedures.

However, the process will depend on the exchange’s terms and the documentation provided by the executor.

For this reason, DBM said testators should make sure their estate plan records the existence of their cryptocurrency holdings.

Private keys and seed phrases should not be included in a will because the document becomes accessible during estate administration and may eventually become part of the public record.

Instead, access information can be stored using secure password managers, encrypted offline storage, or protected hardware wallet recovery arrangements.

A confidential letter of wishes can also provide practical instructions, although it is not legally binding and does not replace the will.

Artificial intelligence (AI) is also creating new forms of digital property that may need to be considered in an estate plan, DBM explained.

People can now use AI tools to create written content, software, digital media and other commercially valuable material.

The legal treatment of AI-generated intellectual property is still developing, but estates may nevertheless contain commercial rights, licence arrangements, subscription revenues or royalty streams linked to AI-generated work.

Executors may need to review contracts to determine whether these rights can be transferred after death.

They may also need to account for licence fees, royalties, maintenance obligations and confidentiality requirements.

DBM said estate planning should therefore distinguish between assets that can legally be transferred and accounts where the deceased only had a personal right of access.