What should I do about cryptocurrency when I'm creating my estate plan?
If you have been investing in cryptocurrency, you know how important it is to be able to keep track of your cryptocurrency keys. The last estimate I saw was that there have been 2.5 million Bitcoins that have been lost in the last few years. Their market value is more than $20 billion. Think of all that money that's been lost because people weren't properly managing their cryptocurrency managing their Bitcoin wallets and all that money is gone. When it comes to your estate plan and you're looking at your Bitcoin, or your Ethereum, or whatever cryptocurrency you're invested in, you need to first understand the tax implications of these as opposed to having money and income from your job.
Cryptocurrency is treated actually like property, not like currency. So every time you buy and sell cryptocurrency, you're subject to the capital gains tax. Now, you're not sure which tax is going to be subject to what rate it is until you look at how long it held that it could be on the short-term side of things could be in the long-term side. But it's important to figure out when you purchase that cryptocurrency so you can determine what the tax impact is.
Your Cryptocurrency Wallet
When it comes to looking at your estate plan we need to look at how are you keeping your wallet if you're not deep into the cryptocurrency world and just getting started and you're not sure who's going to be three main ways that you can hold your wallet:
- Hardware
- Software
- Paper
Now we'll start from the bottom to the top. If you're maintaining a wallet on paper, surely you understand how important it is that you keep that paper in a safe spot. And keep it handy in case something happens to you and someone needs to be able to access it. That paper could be the most important thing you've got standing between you and that $20 billion in lost Bitcoin. If you're using your wallet and keeping it on hardware, just like the paper it's important that you keep that hardware safe. And functioning. If you've got a loaner laptop and that laptop gets stolen or you lose that laptop or your computer won't boot anymore, you may once again be losing all of those bitcoins all that cryptocurrency that you've been investing in, will go away with the hardware. The smartest wallet I've seen so far is a wallet that works with software. The reason is they're not dependent on paper. They're not dependent on computer hardware to software that you're able to access from different places. And that way you can make sure that in case something happens, let's say your house burns down, you still have the ability to access your Bitcoin or access your cryptocurrency so my clients who have cryptocurrency then come to me and say what do I need to do next?
What's the most important planning tool I've got for my cryptocurrency? Well, the most important that you're going to look at is your will, have you left directions for what happens to any cryptocurrency or only the time for death? And if you have, do we have those instructions in the right place or something? Do you have an inventory? It's not a legal document, but it's something you can keep with your other documents to make sure that the important people in your life can have access to the cryptocurrency in case something happens to you.
Another document you may want to consider is a power of attorney. The Power of Attorney allows somebody else to manage your finances for you in case something happens to you. So if you become incapacitated and we need to access that Bitcoin we need to access that cryptocurrency using a power of attorney that a trusted loved one of yours or trusted advisor of yours can access those cryptocurrency wallets.
Now if you're delving into the cryptocurrency world, chances are this isn't something you're going to try to do yourself. You understand how important it is to keep a wallet to keep track of your cryptocurrency and then trying to do an estate plan where you just do it yourself is not the way you want to protect your investments. So the smarter way to do is to work with a professional and create the right estate plan and the right documents to make sure we're protecting our investment in that cryptocurrency.
If you're ready to get started, let's set up a Legal Strategy Session, a 15 or 20-minute phone call to discuss where you are and what are the best options for you. You don't want to become part of that growing group of folks who have now lost more than $20 billion in cryptocurrency. Because they lost access to the wallets
