Cryptocurrencies are secured through complex encryption schemes of cryptography making them extremely hard to counterfeit. So long as the owner maintains control of their account cryptocurrencies are totally secure. With their explosion in popularity and value over the past several years, it is important to consider the implications of cryptocurrency for your estate plan.
One of the main selling points of the most popular cryptocurrencies is their anonymity. The currencies can be generated, acquired, and spent anonymously. But that means if you die owning cryptocurrency any and haven’t told anyone or made a record, they will die with you.
While overly publicizing ownership of cryptocurrency somewhat defeats its purpose, the legal professional drafting your estate plan and the executor of your estate requires all your financial information and therefore should be trustworthy enough to handle this.
Unlike any other traditional assets, there is no office or bank for an executor to contact in order to establish ownership and value. Cryptocurrencies are secured through a private key that normally only the owner knows.
Common solutions to the problem of a password that cannot be reset and should not be kept physically include storing the information in a safe deposit box or secure digital archive site.
By their very nature, the worth of a cryptocurrency is more volatile than a typical investment. It is therefore important to remember the relevant value for estate tax and distribution of asset purposes is what the cryptocurrency is worth at the time of your death, not what you paid for it.
Accordingly, a periodic review of the value of your assets and updating your estate plans to reflect any changes is important.
Not everyone is familiar with the idea of anonymous digital currency or comfortable with having what is essentially a large pile of cash outside of a bank. A good estate plan will consider all these potential issues and will leave the asset to someone fluent with this type of currency or leave instructions for its conversion into a more traditional asset. It is, however, important to remember, as a personal asset, cryptocurrency does not need to be declared as income on a tax return, but if it is bequeathed as or converted into cash it does.
Mr. Abraham is an experienced attorney and founding member of the Law Firm of Abraham & Bauer. The Towson, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
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