Incorporating Cryptocurrency into Your Estate Plan
As cryptocurrency continues to grow in popularity, it has become an increasingly important asset class for investors. However, many people overlook the complexities involved in incorporating digital assets into their estate plans. Unlike traditional assets, cryptocurrency presents unique challenges and considerations. Here’s a guide to help you seamlessly include your crypto holdings in your estate planning process.
- Understand the Nature of Your Cryptocurrency Holdings
Cryptocurrencies can be classified as either tangible or intangible property, depending on how they are stored. For example, cryptocurrencies stored in wallets (offline) might be considered tangible personal property, while those held on an exchange (online) are generally treated as intangible assets. Understanding this classification is crucial as it affects how these assets are handled in your estate plan.
- Update Your Estate Planning Documents
Ensure your will or trust explicitly mentions your cryptocurrency holdings. Include detailed instructions on how these assets should be distributed. It’s essential to specify whether your cryptocurrency is stored in a wallet or with an exchange, as each requires different access procedures. Many online exchanges (such as Coinbase or Robinhood) do not allow beneficiary designations for cryptocurrencies. Therefore, they force that portion of your account to be handled through a probate proceeding.
- Secure Your Private Keys
The private key is the most critical piece of information for accessing cryptocurrency. It’s crucial to ensure that your executor or beneficiaries can access these keys without compromising security. Some strategies include:
- Dividing Keys: Split the key into parts and give each part to different trusted individuals, ensuring that no single person has full access.
- Storing in a Secure Location: Use a safe deposit box or a secure, offline location to store your private keys. Avoid including them in your will, as wills become public documents.
- Consider Using a Trust
For more substantial crypto holdings, consider creating a trust. Trusts can provide more control over how and when your assets are distributed. Additionally, they can avoid the probate process, which can be lengthy and public. Trusts can also help manage the tax implications of transferring cryptocurrency. However, see #2 above, for limitations on designating beneficiaries.
- Include Digital Asset Instructions
It’s not enough to simply list your cryptocurrency; you must also provide instructions on accessing and managing these assets. This includes providing information on:
- Account Details: The exchanges or platforms where the assets are held.
- Wallet Locations: Details about any physical storage devices like USB drives or hardware wallets.
- Access Information: Necessary passwords, PINs, and private keys, stored securely and shared with trusted individuals or the estate executor.
- Appoint a Knowledgeable Executor or Trustee
Given the technical complexities involved in managing cryptocurrency, it’s advisable to appoint an executor or trustee who understands digital assets. This person should be capable of handling the specific challenges associated with cryptocurrencies, such as secure storage and transaction processes.
- Stay Updated on Legal and Tax Regulations
Cryptocurrency regulations are continually evolving, both at the state and federal levels. It’s crucial to stay informed about the latest legal and tax implications related to cryptocurrency inheritance. This includes understanding the tax basis for inherited crypto and any potential capital gains tax liabilities.
Conclusion
Incorporating cryptocurrency into your estate plan requires careful consideration and planning. By understanding the nature of your digital assets, updating your estate planning documents, securing private keys, and possibly using a trust, you can ensure that your crypto holdings are effectively managed and transferred to your beneficiaries. You should consider these issues when deciding how or where to store your digital currency. Always consult with a knowledgeable Miami estate planning attorney who is familiar with digital assets to navigate this complex area effectively.
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This article is intended for informational purposes only and does not cover the entirety of incorporating cryptocurrency in your estate plan. It is important you consult with a Miami Estate Planning attorney if you have questions regarding your requirements to report. For more information on estate planning for digital assets, contact attorney Jacqueline R. Bowden Gold at (305) 556-5209 or by email JBowden@raricklaw.com.