Bitcoin raises some interesting issues in estate planning. With a market value of already more than $3 trillion dollars, cryptocurrencies are fast becoming a significant part of the estates of many individuals.
But that doesn’t mean they fit neatly into our current estate planning or probate procedures.
Passing on digital currency to your heirs when these virtual assets have virtually no personal identifying information attached to them (no pun intended) isn’t easy. What happens if you die without telling someone what your passcode or “key” is?
On the other hand, you don’t want to publicize your passcode key and open yourself to hackers.
So how do you keep your money safe yet provide the information your loved ones or personal representative will need in the event of your death?
These are just some of the challenges that cryptocurrencies present for clients and estate planners like attorney Samantha J. Fitzgerald alike.
In today’s post, we’ll take a brief look at bitcoin and cryptocurrency and how they may affect your estate plan.
But first, what exactly is bitcoin? And what is cryptocurrency?
What Is Cryptocurrency?
At its most basic level, cryptocurrencies are digital coins that are created and traded online. They are used online to buy something online.
Bitcoin, the original cryptocurrency, and other cryptocurrencies (see below) function online just like regular money.
What makes cryptocurrencies different from “fiat” (regular currency) is that each digital coin has its own digital “signature.” And each owner of that individual coin has a mark that represents his or her ownership. Which means that every single bitcoin, no matter how many times it is traded or sold, can be traced.
Because digital currency is recorded on the “blockchain.”
What Is the Blockchain?
The blockchain is essentially the backbone of bitcoin.
It is a digital public ledger that provides the structure for keeping bitcoin secure yet decentralized. After all, one of the goals of the development of digital coins was to avoid inflation. This became possible with the creation of the concept of the blockchain in 2008.
At its most basic level, the blockchain is a distributed ledger that tracks and validates cryptocurrency transactions.
A Bit About Bitcoin
There are thousands of cryptocurrencies on the market. Bitcoin is the original cryptocurrency and the most popular.
Some other popular cryptocurrencies are:
Like gold, Bitcoin is valuable because the supply is limited. Only 21 million coins will ever—or can ever be—in circulation.
Cryptocurrency is completely legal, but its value is highly volatile.
Bitcoin, Cryptocurrency, and Your Estate Plan.
As noted briefly above, crypto-assets create certain challenges when it comes to estate planning.
One of the major challenges with digital assets in estate planning is transferring them to your heirs.
Cryptocurrencies are stored in a digital wallet—either online or a physical wallet. A cryptocurrency wallet is an app or physical device that runs a wallet app.
To keep these assets safe, they can only be accessed through a private key which is a unique series of alphanumeric characters generated by the wallet that only the owner knows. Lose that key and you will lose all of your money. There is no way of getting it back or “resetting” a forgotten password. People have lost billions of dollars because they lost their private key.
The tension between keeping your private key safe and making sure someone knows where your key is and how to access it in the event of your death or incapacitation can prove troublesome for estate planning purposes.
Cryptocurrency keys have absolutely no personal identification which makes getting them into your estate at the time of your death difficult. The only information your personal representative has to go on when gathering your digital assets is the private key.
Leaving the key to someone in your Last Will and Testament (“Will”) isn’t a good idea because Wills are public documents.
On the other hand, if no one knows what your private key is or how to access it, your digital wealth will be completely lost when you die or if you should become incapacitated.
Also, according to the IRS, cryptocurrencies are treated as property rather than as currency for tax purposes. This means that profits realized from the purchase and sale of digital currency are subject to capital gains tax.
So, what can you do if transferring your digital currency to your heirs or beneficiaries after your death is important to you?
Well, if you live in Plantation, Florida, consider consulting with an experienced estate and probate lawyer to discuss developing an estate plan for your digital assets that works for you and your particular circumstances.
Protecting Your Family is Just a Phone Call Away.
Protecting your digital and physical assets so you can protect your family is critical. If you have bitcoin or other digital currencies as part of your estate, you need to make an estate plan specific to your assets and your needs. All it takes is one phone call to the Law Offices of Samantha J. Fitzgerald to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Connect with us on Instagram or Facebook or give us a call at 954-580-3690 today.