Estate Planning For Cryptocurrencies And Other Digital Assets

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Estate Planning For Cryptocurrencies And Other Digital Assets

Beginners and experienced investors who know how to diversify assets will have cryptocurrencies and other digital assets making up their portfolios. The digital currency’s patrons are millennials and Generation Z, who make up the most buyers. These assets are often included in estate planning to secure their futures, but many might be unaware of the tax implications and other options available. This article will explain how these assets affect estate planning for cryptocurrencies and what considerations to make.

Firstly, What Are Cryptocurrency And Digital Assets?

Also known as crypto, cryptocurrency has many forms that exist digitally. They are using a decentralized system when handling transactions. Unlike fiat currency, they are not governed by any regulating authority. Anyone can freely buy them on cryptocurrency exchange websites. If you’re an avid investor, you’d want to know how to leave cryptocurrency in your will.

Digital assets are defined as any digital material that includes texts, audio, video, graphics, and animation owned by an individual or an organization. Over the years, digital assets are evolving by adding new digital formats. Not only did they mention make-up assets in digital or virtual form, but they also included documents, spreadsheets, and presentations related to business.

A digital asset must have three essential elements:

It must be a digital file owned by an individual or a company
Be discoverable and searchable
Must provide value to the owner or owners

An Important Consideration

Every investor holding cryptocurrencies and digital assets must inform their appointed executors about every asset they have, physical or digital. Executors must be informed which of the assets are accessible virtually. But complications can arise because accessibility can be the most challenging process. Unlike real estate investments, the purchases of digital currency might take a quicker process, but they are also easier to lose.

Cryptocurrency holders keep their assets in a digital wallet accessible only online. Each wallet has its blockchain address to send and receive crypto. To access these wallets, the owner must input the unique private key to enable transactions related to the wallet’s contents. What also makes it difficult is that crypto-assets have no identifying information. Only the private key can open the wallet regardless of the identity of the wallet owner.

Storage for digital assets is tangible, unlike cryptocurrencies. They can be stored in USB data storage, computers, and mobile devices. They are easier to retrieve if the owner has kept them in single storage or other heirs have access to the devices. There can also be personnel who have access to a computer owned by the company and can assist in retrieving essential files.

Gift And Estate Tax

Individuals leaving crypto assets behind for their beneficiaries must understand that there are tax deductions because the Internal Revenue Service (IRS) identifies them as property subjected to federal tax purposes. The gift and estate tax rules that apply to real estate and stocks also apply to crypto. In 2022, you can leave behind USD$12 million without any gift or estate tax application. But this exception is bound to revert to USD$5 million on January 11th of 2026, when the rules expire on that day.

Place Digital Currency In A Revocable Trust

There is one legal tool that individuals who wish to invest in cryptocurrency and who are also keeping digital assets will benefit from. Placing them under revocable trusts helps direct the fate of the assets to avoid probate. Beliefs allow the investor more control and flexibility and make tax obligations efficient.

The investor must transfer the digital currency to the trust and fund it. It lets the heirs know its existence and keeps probate administration away. If the will is probated, it is still subject to a public probate procedure. Trust is only allowed enough information to identify digital currency as an asset. Listing the Private Key or access code should never be in any documents.

Planning For Digital Assets

It only takes a few steps to organize your digital assets when estate planning. It will help your executor when you leave instructions after your passing.

Create a list or an inventory of your digital assets and include the usernames and passwords designated for each account. Make sure to include the answers for websites that have security questions.
If you’re not comfortable with writing down all the login details of accounts, you can use a protected digital file instead. It makes sense to be cautious because there’s a risk of this list falling into the wrong hands.
Name your digital executor in the will. At the time of your passing, this is the trusted person who will receive all the logins or access to your digital accounts. It is the same person who is also the overall executor of your properties and assets.

In Conclusion

When you have cryptocurrency and digital assets, it’s essential to plan and organize them in a way that will be easier for your executor. Both crypto and digital assets are technology-based, and owners must be careful when managing them. Placing them in proper storage and carefully taking note of the login details or access codes will ensure that your heirs will receive them when the time comes.

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.