The short answer to our article title is – “Yes.” Cryptocurrency is quickly becoming a prominent part of many people’s estate plans. That is because many people who own cryptocurrency worry about whether their crypto assets will go to their loved ones when they pass. It is imperative that you realize that your crypto should be a part of and documented in your estate plan.
In this article, we will discuss some cryptocurrency basics, and then we will cover the reason that it should be part of your estate plan just like other important assets in your estate. If, after reading this article, you have additional questions about cryptocurrency, then we welcome you to contact our Palm Beach County estate planning attorneys at Doane & Doane, PA. Call today at 561-656-0200 or fill out our online contact form.
What is Cryptocurrency?
As you may know, cryptocurrency is a form of digital currency in which transactions are verified and all records are kept using cryptography, commonly referred to as blockchain technology. Having your currency verified by a blockchain system is in contrast to the currency that is regulated by a centralized authority such as a sovereign government.
There are thousands of different types of cryptocurrencies such as Ethereum, Litecoin, Bitcoin, and Chainlink, just to name a few. You can, of course, use digital currency to make purchases or make investments. Apps like PayPal even allow you to buy and hold cryptocurrency in a digital wallet.
Since Bitcoin came into existence, its value has increased by 440%. One Bitcoin worth $5,413 in March of 2020 was worth $48,634 by March of 2021. That shows that the value of Bitcoin fluctuates dramatically over a short period of time. Yet, cryptocurrencies may become more prevalent such that you will want to have some cryptocurrency in your asset portfolio.
A Pitfall Unique to Cryptocurrency
Just recently, a man-made international headlines, and sent shockwaves through the cryptocurrency world, when he forgot his cryptocurrency password. As a result, he could not gain access to his Bitcoin account – worth $220 million dollars.
There is a lesson to be learned there. Without a password, you cannot access your cryptocurrency because there isn’t a system in place to recover your password. Thus, more and more investors are seeking the guidance of estate planning attorneys on how to account for (and be able to always access) their cryptocurrency assets. It is vital that if you invest in a cryptocurrency that you keep your password ‘key’ in a safe place.
Why Do I Have to Protect My Cryptocurrency Assets in an Estate Plan?
The IRS now considers cryptocurrency a taxable asset, as it is now classified as property. Because of this, your cryptocurrency can be a target for any legal action brought against you if you owe money to creditors.
Protecting your cryptocurrency assets will ensure that if you become part of any legal action, you will have an extra layer of protection, and it will be a greater challenge for any entity to try and seize them.
What Can I Protect If I Add Cryptocurrency to My Estate Plan?
Many people are investing in cryptocurrency because of the potential for high returns. Due to the increase in wealth, you will want to pass your digital currency to your loved ones. Adding your cryptocurrency to your estate plan, it will protect the current and future value of your cryptocurrency.
How You Can Add Cryptocurrency to Your Estate Plan
In order to properly document your cryptocurrency, you should consult with an estate planning attorney. However, there are certain steps you can take to pass your cryptocurrency to your beneficiaries. They include:
1. Make sure your trustee or fiduciary has your password ‘key’. This will be necessary so they can take control of your account when you pass away. In the alternative, you may want to store your digital key in a safe or safety deposit box.
2. A death certificate is not necessary, your beneficiary, trustee, or another fiduciary will be able to immediately access your cryptocurrency account.
3. Your estate planning attorney can add a clause to your will or other estate planning document that grants your fiduciary the power to access, retain, and manage your cryptocurrency in order to avoid liability under privacy laws.
Document Your Investments
Your traditional investments are easily documented, but your cryptocurrency doesn’t have traditional ownership, nor does it have beneficiary designations. Furthermore, cryptocurrency accounts are anonymous. So, if you pass away without telling anyone that you own cryptocurrency, and you do not provide the password or ‘key’ to your crypto account, the asset dies with you.
Because of the increase in cryptocurrency values, your estate planning attorney should advise you on how to document what you own, where your passwords are kept, and the purchase price of each cryptocurrency.
Work With Estate Planning Lawyers in Palm Beach
Including your cryptocurrency in your estate plan is an integral part of planning for the future and can ease much of the emotional burden your successors will face when handling the affairs left after you are gone.
At Doane & Doane, we help you determine the best tools to plan for life’s eventuality. Let us help you. We at Doane & Doane combine big firm resources and experience with the personal touch of a small, boutique firm. We pride ourselves on offering the one-on-one attention that clients at big firms often do not enjoy.
After almost two decades of practice, we have earned the reputation as one of West Palm Beach’s most prominent tax and estate planning firms. In particular, we understand estate and probate matters involve a great deal of emotion. We are privileged to help clients on such important matters, and we genuinely care for and support our clients and their families.
We hope that all of our clients, friends, and business associates enjoy the hospitality of our firm’s legal staff. Doane & Doane serves clients in the communities along Florida’s Gold Coast and Treasure Coast, including Palm Beach, Broward, Miami-Dade, Indian River, St. Lucie, and Martin counties. For a free consultation and to get to know our firm, please give us a call at 561-656-0200.