Over the past few years, cryptocurrencies like Bitcoin, Ether, and even Dogecoin have become increasingly popular. People are using them as a substitute for hard currency like U.S. dollars, and holding them as assets they hope will appreciate in value. As their use becomes more widespread, it is important to start incorporating cryptocurrencies and other digital assets into our estate plans.
The number of Brandon, Mississippi area clients who mention to us that they have assets their close family members know nothing about is far from zero. From shoeboxes of cash in the back of the closet, to bank accounts without their spouse’s name on them, to tracts of land they bought on the sly, hidden assets are not uncommon. As estate planning attorneys, the Palmer & Slay team works with our clients to ensure these assets are transferred according to their current owner’s wishes, either now or after their death.
Assets that are hidden even from us will eventually be discovered, taxed, and distributed after death. It might cause family drama, and Uncle Sam might take a bigger bite out of the estate than would have been necessary with proper planning, but things will get sorted out…. unless the hidden assets were digital.
Digital assets, and cryptocurrency in particular, can cause a lot of problems if they are not properly included in your estate plan.
The Tax Man Cometh
The Internal Revenue Service (IRS) is stepping up its game in order to tax the exchange of digital assets. Since the IRS treats cryptocurrencies like property, capital gains taxes and estate taxes will be assessed if the assets have increased in value since acquired. Proper estate planning can help shield your family from an unexpectedly large tax bill related to the transfer or sale of crypto.
If you aren’t comfortable with the cryptocurrency you have disappearing into thin air after you die, you need to create or update your estate plan to ensure your digital assets will safely pass to someone else.
One of the benefits of cryptocurrency is its security. There is currently no way for someone to force their way into your account unless they have the necessary keys. However, this benefit becomes a liability if your heirs are locked out of your crypto accounts. Even a court cannot force your digital wallet to open up.
If you want someone to be able to access your accounts after death, you must provide the documentation needed for your heirs to access and control your accounts, in addition to granting permission for such access and control. This means passwords, instructions, and a record of the cost basis of the assets must be securely stored. This information could be written on a piece of paper or stored on a USB drive that is kept with other estate planning documents in a secure location.
Preserving Your Wealth. Protecting Your Loved Ones.
Palmer & Slay is working closely with crypto owners in the Brandon, Mississippi area and beyond who want to ensure the taxes on their digital assets don’t burden their family members or destroy their otherwise carefully crafted estate plan. We are also helping crypto owners figure out the best way to securely transfer their assets to someone else upon their death instead of leaving them stranded in an inaccessible digital wallet. If you have digital assets you want to incorporate into your estate plan, Palmer & Slay is here for you. Please contact our office to schedule a consultation.