Cryptocurrency (digital currency such as Bitcoin) is on the rise in the U.S. which causes a need for additional planning not previously contemplated by estate planners. Records are kept by blockchain (not by the government) and purchased on exchanges such as Coinbase.
Owners can access their cryptocurrency with a password known as a “private key”. If you forget or lose your password or private key, all the value of your cryptocurrency could have been lost as there was not a password recovery system until recently. Now there is a two-step verification system that you can recover your password on your cell phone (so someone you trust should have access to your cell phone and password to it). Several years ago, an individual lost $220 million of his cryptocurrency when he lost his password. If the owner could lose his password, can you imagine how many beneficiaries will lose the value of this asset without proper precautions and planning? Some owners store their cryptocurrency keys or passwords on a computer, phone or tablet not connected to the internet called a “cold wallet”. Others store on an online application so that they and their agent under a power of attorney, executor of their will or trustee of their trust can access – so that the cryptocurrency asset is not lost.
The authority to handle the owner’s digital asset (cryptocurrency is a digital asset) should be mentioned in the owner’s power of attorney (usually used in the event of disability or incompetency of the owner), will (sometimes a digital executor is named) or trust (although trust ownership is not permitted by some cryptocurrencies). The agent under a power of attorney, executor of a will or trustee of a trust is known as a “fiduciary”.
The cryptocurrency owner should probably leave instructions to the fiduciary about the password or private key or where it is stored (“cold wallet” or “hot wallet”) either in a memorandum to the owner’s will or in a trust. If written in a memorandum, it should be kept with your other estate planning documents in a safe place that is accessible to your fiduciary. Thus, trust in your fiduciary and his or her successor is paramount. Some banks will not serve as a fiduciary over cryptocurrency.
Cryptocurrency is considered personal property. It is taxed like stocks. Records of each purchase and sale should be kept for capital gains and loss reporting. The exchange (like Coinbase) will often keep records for you. Furthermore, the value of the purchase may be needed to determine the basis if gifted to an individual or transferred to an irrevocable trust in which the owner retains no control. Of course, it is an asset that would be considered part of the owner’s estate for estate tax purposes if not gifted prior to death.
Finally, a fiduciary has a duty to invest as a reasonably prudent investor. Since cryptocurrency is so speculative, investment in cryptocurrency by a fiduciary could violate the reasonably prudent investor rule. So instructions in your estate planning documents should give the fiduciary powers desired about cryptocurrency. Language in your trust or power of attorney would need to reflect the authority to purchase or hold cryptocurrency.
Cryptocurrency requires additional estate planning. Avoid “Tales from the Crypt”.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual or in person Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.
from Texas Bar Today https://ift.tt/yWwv23S
via Abogado Aly Website
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