If You Own Cryptocurrency, It’s Time to Update Your Estate Plan!

Traditional estate planning is daunting enough for the average individual, family, or small business owner, but now there is an additional curveball to deal with: cryptocurrency. More and more individuals and business owners are acquiring digital assets such as cryptocurrency, a digital asset that is generated online and can be traded.

Cryptocurrency and other digital assets were not considered in many older estate plans. If you currently have any cryptocurrency or plan to acquire any in the future, make sure you discuss it with your estate planning attorney and update your estate plan documents accordingly. It is imperative that your estate plan documents include language that covers your digital assets, just as it covers your more traditional assets. Your trust or will should specifically mention digital assets and cryptocurrency and how they should be distributed to your beneficiaries. The provisions in your will or trust can make a big difference in who will inherit the asset.

Cryptocurrency can be extremely difficult to discover after an owner’s death or incapacity. Make sure you leave your successor fiduciaries detailed instructions on how to access your cryptocurrency. Fiduciaries are the individuals, or in some cases, companies, you name in your estate plan to handle your assets in the event of your incapacity or death. A fiduciary can be a trustee, executor, personal representative, or attorney-in-fact. Failing to provide information on your digital assets can result in losing those assets entirely after your death or incapacity if no one knows you have such assets or where to find them.

When you acquire new kinds of cryptocurrency or begin using a new wallet or storage device, be certain to update your estate planning documents. There are different kinds of cryptocurrency, and they are stored in distinct ways that can matter in terms of how they will be treated in your estate plan. For example, if your cryptocurrency is stored in a “cold wallet” or offline wallet, such as on a USB drive, it will be treated as tangible personal property. However, if it is stored in an online wallet, it will be treated as intangible personal property.

If you have a trust and you plan to use a corporate trustee, you need to determine if they are willing to handle cryptocurrency, because most are not. You will also want to ensure that there is specific language in the trust that allows your trustee to hold cryptocurrency as a trust asset.

A word to the wise: Although it has the word “currency” in its name, cryptocurrency is considered personal property and not real currency or legal tender by the IRS. Contrary to some previous held beliefs, cryptocurrency is taxable. While cryptocurrency does not pay dividends or earn interest, it does increase and decrease in value. When cryptocurrency is traded, it can lead to capital gains taxes, which is reportable on tax returns. This should all be considered as part of your broader estate plan.

If you have questions regarding cryptocurrency and other digital assets and your estate plan, contact me or one of our other estate planning attorneys at 314.726.1000.

Published in the May 2022 St. Louis Small Business Monthly.

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