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. The Executor of an Estate containing Crypto Assets can get perplexed with the process to handle and distribute Cryptocurrency Wallets, Exchange accounts, and Cryptocurrency funds to the beneficiaries. The following points may help representatives and Executors to manage and sort out the requirements for Cryptocurrency Inheritance.
1. Locate Cryptocurrency Accounts And Funds
- All Wallets and Exchanges where Crypto Assets are stored.
- Devices used to access Cryptocurrency Wallets, Exchanges, and Crypto funds and the location of these devices.
- A guide incorporating every technical step required to reach the accounts.
With this information, the Executor needs to reach the Cryptocurrency funds. Unavailability of this inventory could lead to loss of Crypto Assets and funds. This inventory could be made easily with the help of a Digital Estate Plan.
2. Getting The Crypto Assets In Your Hands
The Executor can essentially acquire custody of the Crypto Assets once the specifics like Pin, Private Keys, etc. are identified. It isn’t always necessary to obtain a Probate Grant.
If the owner was holding Cryptocurrency with a third-party service(Custodial Wallets or Cryptocurrency Exchanges), the provider will require a Death Certificate and Permission of Probate to share access to the account.
The Executor should move the Cryptocurrency to a new self-owned Custodial or Non- Custodial Wallet, using a new private key that only they know. If someone other than the deceased person knew their private key, this will protect the Crypto Assets.
Executors should also secure Crypto assets Access details on devices with extreme caution. If at all possible, Executors should establish that the deceased did own the Cryptocurrency Assets before discarding them, for example by locating proof of purchase to guarantee that no one else has a stronger claim to the asset.
A Grant is not necessary for transferring or selling Cryptocurrency, it does demonstrate the ability of the Executor to administer the Estate Assets.
3. Dissemination of Crypto Assets
When the Executor has complete control over the Cryptocurrency in their account or wallet, they can transfer them to the appropriate beneficiaries or sell them in line with the terms of the deceased’s Will or intestacy rules which may have tax implications.
Executors should transfer the Cryptocurrency to an Exchange to sell Cryptocurrency because there is no central organization that controls transactions. The Executors have ownership of the wallet and its contents as long as they have the access details(public and private keys).
Cryptocurrency is classified as property by the IRS, and transactions involving it are taxed if:
- Cryptocurrency is used for purchasing goods or services.
- A Cryptocurrency is swapped for another Cryptocurrency.
- Cryptocurrency that has been mined or forked is accepted.
- Fiat money is traded for cryptocurrency.
Tax would be exempted if:
- Cryptocurrency is contributed to a charity or gifted to someone.
- Cryptocurrencies are purchased with fiat money.
- Cryptocurrency in one wallet gets moved to another.
Cryptocurrency has a minor influence on Estate tax, and the beneficiaries receive the asset at its Fair Market Value for the time period following death or incapacitation of the owner.
Crypto Assets holders should note that avoiding taxes by mishandling transaction records is not recommended; instead, keep detailed records of the Crypto transactions and pay income taxes on time to prevent IRS audits, which could cause problems for the Estate, Executor, and beneficiaries.