How Cryptocurrency Impacts Your Estate Plan

June 15, 2022

Cryptocurrency is a relatively new phenomenon, even if Bitcoin and other popular forms have actually been around for nearly 15 years now. The practice is catching on for a lot of investors, and some view it as a great investment to make and pass on to heirs and other loved ones.

When planning your estate, crypto holdings can create a slightly more tricky plan as you’ll need to consider several options in passing on your crypto. Cryptocurrency markets itself as a “decentralized” form of currency, so this creates some questions about regulating the exchange of crypto after death. We want to help clarify how this process works if you plan to or already have invested.

Defining crypto assets

Some assets in your estate will automatically be transferred either through the estate plan you establish or through probate. Your executor, personal representative, and/or beneficiaries will need to sort through your assets to make sure everything is accounted for.

If you fail to specifically designate your crypto assets, this could lead to those assets essentially dying with you. If your loved ones aren’t familiar with the market or aren’t aware you are holding any, there is no way for those assets to be accessed. This makes it imperative that you consider your crypto assets when establishing and modifying your estate plan. The beneficiary receiving the currency will need both the public and private keys to access and receive it (without both the crypto could be lost on the blockchain forever).

Executors and beneficiaries

If you have a crypto wallet full of assets, it’s going to take careful consideration to make sure those assets end up in the right hands. Many assets like cash or property can be transferred to just about anyone as most people have at least a baseline knowledge of those assets. Cryptocurrency is new or completely unfamiliar to many people.

Your executor should have a baseline understanding of how crypto platforms and wallets work as they’re going to be in charge of making sure your chosen beneficiary receives the assets. The designated beneficiary of your estate should also have a baseline knowledge of crypto because without it they may not be able to properly access, store, transfer, sell, or trade the crypto for the value you intend them to receive.

Tax implications

The Internal Revenue Service (IRS) treats cryptocurrency just as it does any other property in an estate. However, when cryptocurrency is transferred as a gift in an estate, the receiver would not be subject to taxes unless the value exceeds the $12.06 million limit for a single estate or $24.12 million for a married couple’s estate. That’s because no gain is being realized on the cryptocurrency until it is sold or exchanged for value.

For your beneficiaries, you will want to make sure they understand the value of the cryptocurrency so they can prepare to pay the gains tax once they sell or exchange the asset for goods or services.

There are unique challenges when you hold cryptocurrency and want to leave those assets to heirs or other loved ones. These are complicated in nature and many people still are unfamiliar with how any of it works. If you need help getting your estate plan in order, Schlegel Livingston knows the ins and outs of getting the right plan in place. Contact us today and we’ll help you through life’s most important moments.