Cryptocurrency is increasing as an investment opportunity and a secure form of payment as more companies are beginning to accept it for goods and services. If you own cryptocurrency or are considering purchasing cryptocurrency, do not forget to discuss this new asset with a Minnesota estate planning attorney. Failing to do so could result in a significant asset being lost forever after your death.
What Is Cryptocurrency?
According to the FTC, cryptocurrency is digital money that can be transferred electronically over the internet or through a go-between, like a bank. There is no physical coin or paper to represent the cryptocurrency.
You can purchase cryptocurrency with a credit card, and the “money” is stored in a digital wallet that you can access to make payments online. Popular forms of cryptocurrency include Bitcoin and Ether, but new cryptocurrencies are being created all of the time.
It is essential to know the risks of using and owning cryptocurrency. The FDIC does not insure cryptocurrency, and the value of cryptocurrency can change without warning. You also do not have the same legal protections when paying with cryptocurrency as you do when paying with other forms of legal tender.
Why Should I Care About Estate Planning with Cryptocurrency?
Many people are investing in Bitcoin and other forms of cryptocurrency, and some individuals have made money in trading cryptocurrency. Cryptocurrency is an asset. And, as with any asset, you need to address that asset in your estate plan. Because cryptocurrency is still new, the laws regarding taxes and creditor claims are evolving and may change. Having an estate plan in place and reviewing the provisions of your estate plan ensures that your investment in cryptocurrency can be protected for your heirs.
Who Needs to Have an Estate Plan in Place for Their Cryptocurrency Holdings, and Why?
Everyone with cryptocurrency holdings needs to have an estate plan in place that addresses their cryptocurrency.
Cryptocurrency does not have a beneficiary designation. Therefore, you need to make provisions for transferring the asset through your estate plan.
If you die without an estate plan, your heirs may not be able to access your digital wallet. If you do not notify your family that you own cryptocurrency and leave detailed instructions for gaining access to the accounts, hundreds of thousands of dollars could remain unclaimed by your heirs.
How Do I Create a Will Or Trust That Includes My Crypto Assets?
The best way to address crypto assets is to do so in your will or a trust. Because cryptocurrency is still new and the IRS continues to adopt new tax laws regarding the transfer of cryptocurrency, it is best to seek legal advice from an experienced estate planning lawyer.
An estate planning lawyer can draft estate documents that provide detailed instructions for accessing the cryptocurrency after your death. Your attorney can help you develop a plan that reduces tax liability for your heirs. You can also utilize trusts to control how the crypto assets are used after your death.
Is There Any Way to Protect the Privacy of My Private Keys While Still Leaving Them Accessible for Those Who Need Access to Them My After Death?
One of the issues with cryptocurrency is that you must have a digital “key” to access the funds. The key is a 64-digit code that allows you to access your digital wallet. You can then make transactions using your digital key. Without the key, the cryptocurrency is worthless to you or your heirs.
Cryptocurrency creates several challenges for estate planning. Because it is a virtual asset with no personally identifiable information associated with it, your heirs only know about the cryptocurrency if you tell them. Even if your heirs know about your cryptocurrency account, they cannot access it without the digital key.
Your cryptocurrency can be stored on a computer hard drive, smartphone, USB thumb drive, or anything capable of storing data. So, your heirs could easily overlook the asset. You need to have a way to notify your heirs while protecting your asset during your lifetime.
Your lawyer can help you devise a method of disclosing your cryptocurrency within your estate documents. You can provide for secure transfer of the private key to your heirs only after your death. Several solutions are available, including using a “deadman” switch to transfer cryptocurrency if you fail to access your accidents periodically.
Contact Our Minnesota Estate Planning Attorney for More Information
If you have questions about cryptocurrency and estate planning, contact our office to schedule an appointment with our Minnesota estate planning attorney. We can help you revise your estate plan to ensure that your crypto assets are protected and passed to your heirs according to your wishes.