Nowadays, an increasing number of individuals are investing in Bitcoin, NFTs (non-fungible tokens), and blockchain tokens. Many have profited substantially from their crypto investments. Yet while crypto-assets may hold enormous family wealth, they also pose complex issues in terms of safeguarding, transferring, preserving, and distributing that wealth.
The advantages of protecting assets with estate planning are well known, and cryptocurrency is a valuable asset. As with any other asset, it must be addressed in your estate plan – in fact everyone who owns cryptocurrencies should have a cryptocurrency-specific estate plan in place. But because crypto is still in its infancy stages, the regulations governing taxation and creditor claims are both complex and dynamic. For instance, there is no beneficiary designation for cryptocurrency, thus you must include provisions in your estate plan for distributing that asset.
Should you die without an estate plan your family may be unable to retrieve your digital wallet. And if your family is not aware that you possess cryptocurrencies in the first place – and provided clear instructions for accessing the assets – your heirs may lose them. Having an estate plan in place and monitoring its provisions guarantees your crypto investment is secured for your successors.
Sharing the wealth
Data for cryptography is encrypted with public/private keys. Your password is a private key that only you know as a crypto owner. The most crucial thing when dealing with a crypto in estate plan configuration is to record the whereabouts of your crypto asset as well as to provide the credentials or “private keys.” Crypto-assets are usually stored in one of four ways.
- A custodian wallet or an electronic exchange
- A hardware wallet
- A mobile wallet
- A software wallet on your computer
Don’t Lose Your Key
Whatever method you use to save your crypto investment, it is controlled by your private key. The advantage of a private key is that it makes hacking the account almost impossible. But the disadvantage is that you will be unable to retrieve your crypto assets if you lose or forget your private key. Your assets will not be recoverable even if the cryptocurrency exchange is involved.
Following the documentation of your private key passwords and crypto locations, you must discuss the information with your estate planning counsel. If you lose your data, become disabled, or die, this step will guarantee that the money is accessible to you or your family members.
Leading the way in estate planning
The easiest method to protect and deal with crypto assets is to include them in your will or trust. Because Bitcoin is still relatively new, and the government is constantly enacting new tax regulations governing cryptocurrency transfers, it is essential to get legal counsel from an experienced estate planning attorney.
At JMV Law in Newport Beach, California we can prepare estate documents that include comprehensive instructions for accessing cryptocurrencies after your death. Our estate planning law firm can help you in developing a strategy that will lower your heirs’ tax liability, including trusts that may be used to regulate how your crypto assets are utilized by your heirs.