When it comes to estate planning, it’s relatively easy to figure in assets such as your house, cottage, and rare coin collection.
After all, they’re physical items that can change hands relatively easily.
But what about digital assets such as Bitcoin?
As wealth management and taxation expert Issac Qureshi can tell you, it’s a completely different ballgame. Cryptocurrency is relatively new, and it’s not handled the same way as conventional assets when it comes to estate planning. Leaving someone all of your digital assets isn’t as easy as specifying it in a will.
Considering there’s an estimated $15 billion or more of cryptocurrency that has been lost due to lack of a legacy plan, planning now can help you avoid contributing to that number.
A Matter of Privacy
One of the big challenges to this is confidentiality: Issac Qureshi explains that in order to access digital currency, one needs a password. That would theoretically mean you might need to include that information in the will, which could be problematic due to its sensitive nature. Any information you add in a will becomes a court document after your death that is publicly accessible.
It’s suggested that you put the wording into your will that you have digital currency, and also who should know about it after you’re gone. However, under the Revised Uniform Fiduciary Access to Digital Asset Act, the name you specify as a beneficiary in your online account actually takes precedence over what’s listed in your will.
Some crypto exchanges won’t let you name a beneficiary, instead making the heirs do the work of claiming what you want them to have. For this reason, it’s a good idea to let your family know which exchange you’re using at the least.
There are some clever solutions that people are turning to in order to pass along the wealth from cryptocurrencies. For example, Issac Qureshi states some people are handing out fragments of the password among several trusted people, who can then theoretically piece it together after you’re gone.
There are also digital estate services popping up that allow you to create an archive of your digital (and physical) assets, as well as storing important information such as passwords to be accessed by executors or powers of attorney.
Put Your Trust in Trusts?
Instead of leaving all of the sensitive information in a will or in secret messages around your house to be decoded, Issac Qureshi states you can turn to a revocable living trust as a way to securely transfer your digital currency to an heir.
A living trust designates a trustee to manage assets while also skipping over the probate process, which determines if a will is authentic as well covering the process of collecting assets, paying debts, and distributing assets to the beneficiaries. With a revocable trust, you can name yourself as the trustee and keep those assets as part of your estate.
According to Issac Qureshi, a major advantage of a trust is that it’s private and won’t become public information.
Don’t Forget About The Taxman
Remember, you should track the value of your digital assets because they will figure into the overall estate taxes, as well as the value you pass along to the beneficiaries. While the IRS doesn’t recognize cryptocurrency as legal tender, it still sees it as property.
However, there’s a silver lining there because the recipients can get a step-up, meaning they only will have to pay taxes based on the value of the assets when they received them. In the case of transferring Bitcoin to your living trust, you may not be subject to transfer taxes as you are the person named in the trust.
Crypto Estate Planning Doesn’t Have to Be Cryptic
There’s a good chance that cryptocurrency will be around longer than you considering it’s global value tops $300 billion, so it makes sense to look to the future if you own any digital assets.
Factoring these electronic assets into estate planning is still complicated, but it’s important that you make it known you intend to pass along your cryptocurrency to a beneficiary. It may be wise to partner with a wealth management expert like Issac Qureshi or an estate lawyer to help prevent your Bitcoin from floating into cyberspace after you’re gone.