If you own cryptocurrency it is important to understand how your cryptocurrency fits into your estate plan. Given the unique characteristics of cryptocurrency, failing to identify and include it in your estate plan could cause it to be lost forever after you are gone. That could cheat your loved ones out of the value of that cryptocurrency. A Carmel estate planning attorney at Frank & Kraft discusses the need to include cryptocurrency as an asset in your estate plan.
What Is Cryptocurrency?
Cryptocurrency is a digital currency that uses blockchain technology (a distributed ledger enforced by a disparate network of computers) to create a decentralized, immutable, public digital ledger. Think of cryptocurrency as “virtual” money that is not issued by a centralized government or bank. It can be used to buy and sell things but only with a computer or smart phone. Although there are hundreds of versions of cryptocurrency, the most commonly used is Bitcoin. Other well-known type of cryptocurrency include Ripple, Dash, Litecoin, and Zcash. Although the tax treatment of cryptocurrency remains somewhat unclear, the I.R.S. has taken note and does appear to be monitoring cryptocurrency transactions.
How Does Cryptocurrency Fit into Your Estate Plan?
Cryptocurrency is kept in a virtual wallet – a wallet that only the owner knows exists in many cases. If you own cryptocurrency, it is important that you include it in your estate plan, or it could be lost forever because of the unique nature of the currency. Unlike cash, stocks, or other types of investments, cryptocurrency is not physically held anywhere. It only exists in digital form. Moreover, because it is kept in the owner’s virtual wallet, it is more than likely that it would be overlooked completely following the owner’s death unless very specific plans are made to ensure that someone else knows it exists. Finally, even if someone knows the cryptocurrency exists, they will never be able to access it unless the owner leaves detailed instructions for doing so. Unlike a bank account, you cannot include a beneficiary designation on your cryptocurrency that automatically transfers ownership to someone upon your death.
Including Cryptocurrency in Your Estate Plan
If you own cryptocurrency, you must include it in your estate plan or it will almost certainly be lost forever following your death or incapacity. Simply listing it as an asset, however, is not enough. Instead, you need to take the following steps to ensure that your cryptocurrency winds up in the right hands:
- Make a detailed list of all cryptocurrencies that you own. Be extremely specific and include the type (Bitcoin, Ripple), approximate value at the time you make the list), and location of the wallet where the cryptocurrency can be found.
- Provide access codes. This is where it gets tricky because without all necessary access codes, PINs, and wallet locations, no one will be able to access your cryptocurrency. Once someone has that information, however, they can access and use that cryptocurrency at any time, and no one can stop them. Unlike unauthorized usage of your credit card or bank account, if someone uses your cryptocurrency there is basically nothing you can do about it. Therefore, be careful what you do with the lists you make and be very selective about who you choose to guard the information you create.
- Include your devices in your plan. This is where people often make a fatal mistake when trying to incorporate cryptocurrency into their estate plan. You must include the device on which the virtual wallet exists as well. Giving someone the passwords and location of the virtual wallet does not help if they do not have the device itself.
- Provide someone you trust with the information. Once you have made sure that all the necessary information is together, you must entrust it to someone. If no one knows the cryptocurrency exists, it will just disappear into the ether and no one will be the wiser.
Contact a Carmel Estate Planning Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about incorporating cryptocurrency into your estate plan, contact the experienced Carmel estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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