When it comes to estate planning, you may wonder how cryptocurrencies can be a part of the legacy you’ll leave behind.
Because cryptocurrencies hold real cash value that fluctuates over time, you’ll want to treat these like other assets in your estate, such as money, stocks, and property. Although digital assets may be unique in their function, a well-planned estate should always include any cryptocurrencies you own.
Naming a Beneficiary for Your Digital Assets
Like with any asset, you should start by naming the beneficiaries who will inherit any cryptocurrencies included in your estate.
Because cryptocurrencies are designed to be anonymous, losing track of your account or wallet information can result in a total loss of those assets. As such, you’ll want to ensure any beneficiaries, fiduciaries, or executors know to manage this technology.
Even a small mishap can result in serious consequences when it comes to cryptocurrencies.
Recently, California enacted the Revised Uniform Fiduciary Access to Digital Assets Act (ROOFED), which makes it easier for your beneficiaries to manage and access cryptocurrencies after your death.
Trust Considerations for Cryptocurrencies and Digital Assets
Trusts can be an excellent way to hold, safeguard, and manage your cryptocurrency. Some of the key advantages of leaving digital assets in a trust include the following:
- Ensures cryptocurrencies are not lost after your death by assigning your cryptocurrencies to your trust
- Keeps digital assets outside of probate, saving your loved ones time and money
- Reduces any potential vulnerability from digital thieves or scammers
- Takes away the burden of your loved ones struggling to access your cryptocurrency after your death
Additionally, trusts can offset taxes whenever your estate has a high value. Current figures for estate tax exemption are:
- $12.92 million for individuals
- $25.84 million for married couples
When you gift your cryptocurrencies through an irrevocable trust, this process removes any increase in the value of your cryptos from your estate. As a result, you can protect digital assets from becoming part of your taxable estate. Because cryptos are volatile, you should plan to establish an irrevocable trust whenever the prices are at a low.
To comply with federal tax law, cryptocurrencies must also follow gift tax regulations. This means cryptos are subject to gift taxes only when the amount exceeds $17,000. You should plan accordingly to avoid making any gift over $17,000, or you risk paying a tax between 18-40%.
Estate Planning Attorneys Can Help with Cryptocurrencies
Although cryptocurrencies are new players in the financial world, they’ve recently become some of the market’s most sought-after and high-value assets. If you are involved in cryptocurrency trading, you should definitely include these as part of your estate.
For many individuals, cryptocurrencies and digital assets can be a gray area regarding estate planning. OC Wills & Trust Attorneys represents estate law matters throughout Orange County. Contact us to learn more about how you can protect your cryptocurrencies as part of your legacy.