Cryptocurrency is becoming more prevalent in the U.S. economy, with more people investing in currency such as Bitcoin or Ethereum. But what makes this form of money so popular – its secretive nature and digital format – can end up causing major problems when it comes to passing it to heirs or beneficiaries. If the owner of cryptocurrency does not make special considerations in their estate planning, the investment could essentially disappear when the individual passes away.
Cryptocurrency is a form of digital or virtual currency that uses cryptography (a method of storing and transmitting data via coded messages) for security as well as to prevent counterfeiting. The most common types include Bitcoin, Litecoin, Ethereum, Zcash, Dash, and Ripple. The U.S. government does not back cryptocurrency and traditional banks or financial institutions do not usually hold cryptocurrency. Instead, the coins are stored within an encrypted software program (sometimes referred to as a wallet) on a digital device such as a computer, removable hard drive, or specially designed storage. That device can be accessed via a private key, which is similar to a bank pin number.
The IRS treats cryptocurrency as personal property for federal tax purposes. Typically, personal property is distributed as per the terms of an individual’s Last Will and Testament. This can be a problem, however, because cryptocurrency is often anonymous and does not carry beneficiary designations like a bank account or 401(k) plan. So, if a person dies without letting their heirs or estate agent know about their private cryptocurrency account, that money could be gone forever.
Concerning cryptocurrency and estate planning, a person who has this type of investment needs to develop a means of passing the account to their heirs. If he or she provides this information to a trustee or executor, they should document: the type of cryptocurrency, where they purchased it, how much they purchased, where it is stored, and how to access it. The cryptocurrency owner should make sure their Power of Attorney documents are updated and explicitly allow the agent to access all financial affairs, including digital assets and cryptocurrency accounts. It is also incredibly important to identify the cryptocurrency account and provide the storage device and private key (or username and password) to access it. Without this information, no one else can touch the account or recover any of the funds from it.
While the future values of cryptocurrency remain uncertain, account owners should still protect their investment with proper estate planning. If you have additional questions about cryptocurrency or want to set up an estate planning consultation, contact Siedentopf Law via our website at AtlantaLegalRemedy.com or by calling (404) 736 – 6066.
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