Cryptocurrency is somewhat trendy, leading some to consider including cryptocurrency in their estate planning. You need to understand the tax consequences, legal issues, and how you hold your cryptocurrency if you plan to include it in your estate plan.
By the time you read this article, some of the laws concerning cryptocurrency will likely have changed. With legal matters in such a state of flux, you will want to work closely with a California estate planning attorney if you intend to have an estate plan that includes cryptocurrency. Here are three things you need to know about cryptocurrency and your estate plan:
Where or How You Store Your Cryptocurrency
Every now and then, a story hits the news about someone who died and their heirs could not access their cryptocurrency, even though the decedent intended to leave the cryptocurrency to their loved ones. You could have $1 billion worth of cryptocurrency, but if you do not make a plan for how your estate or beneficiaries will access these assets after your death, it could all be lost.
There are several options of how to store or hold your cryptocurrency, including a custodial wallet with a third-party like a crypto exchange; a cold wallet like a USB drive; a paper wallet that is actually a print-out of your crypto keys; and a hot wallet, in which you store your crypto online. Each of these options has a different level of risk if someone wants to steal your crypto.
For purposes of your estate planning, you will want to address two issues of cryptocurrency. One, choose a storage type that provides reasonable safeguards to prevent theft, either physical theft or hacking. Two, you need to include instructions on how to access the crypto. These instructions should be made a part of your estate plan. Obviously, since wills have to get filed in court, you do not want to include the instructions in a will.
Legal Issues of Cryptocurrency and Estate Planning
One of the original appeals of cryptocurrency was the claim that no government and no laws could control cryptocurrency. While that was never quite accurate, it is becoming less accurate with every passing day.
Legislatures worldwide are struggling to understand and regulate cryptocurrency. As the laws governing cryptocurrency evolve, you will want to keep on top of any legal developments and evaluate how those laws could impact the value of using cryptocurrency in your estate plan. One way to accomplish that goal is to work with a California estate planning attorney who understands cryptocurrency laws.
Tax Consequences of Cryptocurrency
A lot of people claimed that no government could impose taxes on cryptocurrency because it operated outside of any geographic territory, thereby leaving no country with jurisdiction over the asset. In reality, buying, selling, and trading cryptocurrency can and does have tax consequences. Also, using cryptocurrency to purchase items can have tax consequences. Governments are getting better at tracking these transactions. If cryptocurrency is a part of your estate plan and your estate gets hit with a large tax bill for unpaid tax obligations, this tax liability could diminish the size of your estate and decrease the amount of assets you can pass on to your loved ones. You will want to talk to a California estate planning attorney about the issues inherent in using cryptocurrency in your estate plan. Get in touch with our office today for legal assistance, we gladly offer a free consultation.