Do I Need to Address Cryptocurrency in My Estate Plan?

In recent years, cryptocurrency has become increasingly popular. Virtual currencies such as Bitcoin or Ethereum may be bought, sold, transferred, exchanged, or received as income. They can be used to conduct secure, private transactions, and many people have been able to realize large profits through trading, mining, and other activities. However, many people may be unsure about how to handle cryptocurrency and other digital assets in their estate plans. If you own cryptocurrency, an experienced attorney can help you include provisions in your estate plan to ensure that your loved ones can access and manage these assets after you pass away.

The Unique Nature of Cryptocurrency

Cryptocurrencies are digital currencies that use cryptography for secure financial transactions. Unlike traditional forms of money, cryptocurrencies exist solely in an online environment without physical representation. This unique nature can pose challenges when it comes to estate planning.

One major challenge with cryptocurrency is the issue of accessing accounts and transferring ownership. Unlike bank accounts or investments held through financial institutions, which typically have clear procedures for transferring ownership upon an account owner’s death, cryptocurrencies are often stored in digital wallets that use private keys or passwords known only by the owner.

If you fail to address your cryptocurrency holdings in your estate plan, there is a risk that these assets may be lost forever if no one knows how to access them or if they are not included as part of the asset distribution process. By accounting for these assets, you can ensure that your investments and earnings can be accessed and used in the future, regardless of what may happen in your life.

Incorporating Cryptocurrency Into Your Estate Plan

To ensure that your digital assets are properly handled after your passing, here are some steps you can take:

• Educate your executor: Make sure that the person you plan to appoint in your will as executor of your estate understands what cryptocurrency you own and where it is stored. Provide them with instructions on how to access and transfer these assets.
• Create an inventory: Keep a detailed record of all your cryptocurrency holdings along with any relevant information needed for their management (private keys, exchange platforms used, etc.). Include this inventory in your estate planning documents.
• Provide instructions: Clearly outline in your will or trust how you want your cryptocurrency assets to be distributed. Specify who should receive them and any conditions or restrictions you would like to impose.
• Understand digital wallet options: Some companies offer digital wallet services specifically designed for estate planning purposes. These services can help securely store and transfer cryptocurrencies while providing access to designated people in the event of your death.

Tax Considerations

In addition to the technical considerations related to accessing online accounts and transferring ownership of cryptocurrency, it is important to be aware of any tax implications that may arise. Cryptocurrency is still a relatively new type of asset, and regulations surrounding its taxation can be confusing. Virtual currency is generally treated as property for tax purposes, and capital gains taxes will usually apply when these assets are sold, transferred, or exchanged. 

It is important to understand what taxes may apply when cryptocurrency is transferred to others as part of your estate plan. Consulting with an experienced estate planning attorney who has knowledge of blockchain technology and cryptocurrency taxation can help ensure that you are taking all necessary tax considerations into account.

Contact a Naperville Estate Planning Attorney for Digital Assets

If you have questions about the role that cryptocurrency or other digital assets may play in your estate plan, it is important to seek guidance from a qualified attorney who understands traditional estate planning strategies and the complexities of digital assets. At the Gierach Law Firm, Our DuPage County estate planning lawyer helps clients navigate the intricacies of modern estate planning, and we can advise you on how to handle these concerns correctly. Contact our office at 630-756-1160 to schedule a consultation.