If you've got any type of cryptocurrency, you'll want to make sure your estate plan has been crafted to properly address them. Bitcoin has become popular enough that it is considered legal tender in El Salvador and Radio Shack is rebranding itself as a cryptocurrency platform. With its popularity, many clients have invested in cryptocurrencies in order to preserve anonymity, which can make things challenging when it comes to your estate plan. As you know, you don't want to lose your access keys, or you'll join that unfortunate group of people who have lost 2.5 million Bitcoins over the years, which are estimated to be worth over $20 billion.
While it may be the "hot" investment at the time, just like other types of investments, it's a common bit of advice that you shouldn't put all your eggs in one basket. But if you have cryptocurrency, you should make sure your estate plan is up to date and addresses what happens to it.
Tax Implications
Even though it has the word "currency" in it, the IRS treats Bitcoin and other types of cryptocurrency as property rather than currency. This means that when you buy and sell it, you can be subject to capital gains tax. Whether you are taxed at the "short-term" or "long-term" rate will depend on how long you hold the cryptocurrency.
What Kind of Wallet Are You Using?
If you've never dealt with cryptocurrency before, you access your cryptocurrency through a "wallet" that is usually one of three types:
- Software
- Hardware
- Paper
As you can probably guess, each type of wallet will require a different type of plan for your beneficiaries to be able to access them after you're gone. If you don't have a plan or fail to leave a process for accessing the wallets, your cryptocurrency assets may never be discovered by your loved ones. Even though your family knows you have it, they will never be able to access it.
What Kind of Planning Should I Do?
If you own cryptocurrency (or if you buy some in the future), you should make sure that your estate planning documents acknowledge and have a plan for accessing the wallets after you're gone. This should include specific language in your will for your digital assets. It should also include a power of attorney in case you become incapacitated and someone needs to access your wallets on your behalf.
With the complexity of cryptocurrency generally, it's important that you work with professionals who can assist you with your estate planning needs.
You May Also Like
- Talking With Your Family About Your Will
- Is It Easy to Update My Will?
- Have You Checked In On Your Digital Assets?
Next Steps
If your estate plan doesn't have provisions for your digital assets, let's set up a Legal Strategy Session to review the best options for you and your family so your cryptocurrency isn't in danger of being lost. If you'd like a copy of the Cryptocurrency Inventory, you can click the image above or click here.
