Cryptocurrency is getting popular among all generations of people but when it comes to securing and planning for Crypto Wallets and Exchange accounts, most people find themselves perplexed by the process to start with an Estate Plan for Crypto Assets.
With a market value of $3 trillion in 2021 which is estimated to increase to $6.8 trillion by 2025, Cryptocurrency holds huge financial value for many people. If you’re planning to create an Estate Plan for your Crypto Assets but need a more comprehensive approach to understand the process then the following points might help.
1. Taxes
IRS describes Cryptocurrency as property and transactions are taxable if:
- Cryptocurrency is used for purchasing goods or services.
- One Cryptocurrency is exchanged with another.
- Mined or forked cryptocurrency is accepted.
- Cryptocurrency is exchanged for Fiat Money.
Taxes are exempted if:
- Cryptocurrency is donated to charity or gifted to someone.
- Fiat Money is used to buy Cryptocurrencies.
- Cryptocurrency stored in one wallet is transferred to another.
The impact of Cryptocurrency on your estate tax is not hefty and the asset is received by your beneficiaries at Fair Market Value of the period after your death or incapacitation. It is not advised to avoid taxes by mismanaging transaction logs instead try to keep detailed records of your cryptocurrency transactions and pay income taxes timely to avoid troubles for your estate and family by IRS audit in case you pass away or become disabled.
2. Address Privacy Concerns
To pass on your Cryptocurrency Wallets to your beneficiaries, a proper guide simplifying every technical step along with account details is required. A Will can dictate how your Crypto Assets have to be distributed among your family members and by whom but it eventually becomes a public record which is why it’s not a great way to provide instructions to access your Crypto accounts.
A Trust is more useful as it does not have to go through Probate and has no risk of leaking private details of your Cryptocurrency accounts and allows faster access of your assets to your beneficiaries. With the volatile nature of Cryptocurrency, it is better to include a Trust along with a Will while planning an Estate Plan for your Cryptocurrency.
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Estate Planning and Digital Estate Planning to Manage your Finances
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3. Sharing Cryptocurrency Details With Beneficiaries
The Legal aspect of sharing Crypto accounts’ details has already been concluded but there are several decisions to be made before carving out your Will or Trust:
- Not much progress has been observed to provide Beneficiary Designations option by Cryptocurrency platforms. The Executor of your Estate needs to have access to the private keys of your Crypto accounts to manage or distribute them. Sharing such confidential details is a crucial task and you need to choose a reliable Executor who can understand technical details and will follow your wishes for asset distribution.
- All devices you use to access Cryptocurrency Wallets and Exchange accounts should be kept safe after your demise or incapacitation. You can include this in your Estate Plan documents but it’s better to share these little details beforehand with your family in case some device containing important information is ignorantly thrown out.
- Considerations need to be made for storing your Estate Plan somewhere your family would be able to access it. You could store it with your attorney, a cabinet, a locker, or in a cloud locker.
By storing your Estate Plan for Cryptocurrency with an online locker like Clocr, it would be simpler to ensure the security and accessibility of the documents. The best way to plan for Digital Assets like Cryptocurrency is through a Digital Estate Plan in which you can also include other Digital Assets like online shopping accounts, bank accounts, patents, gaming accounts, or social media accounts and ensure the security of all of them at once.
