Cryptocurrency might be new in the tech and financial world; however, its scope has expanded to the four corners of the globe. An estimated 106 million people are cryptocurrency users, according to Business Insider. With the increasing value of cryptocurrency, it is significant that you should plan appropriately in your estate planning. The death of Mircea Popescu, a Bitcoin billionaire, reminds us how it is essential to ensure our loved ones can access our digital currency after we die.
#1. Ensure that your cryptocurrency is in your will.
You do not want your digital currency to be inaccessible or invisible to your next-of-kin. Take note that your loved ones or executors will not know how to access it since it is not located in a traditional bank. Your will becomes a public record, and you do not want to identify digital wallet details in your will. Remember that it should be in a separate memorandum that can remain private.
#2. Leave detailed instructions on how to transfer or sell digital currency.
Investment institutions or banks do not currently accept cryptocurrency. There are various solutions to ensure that your next-of-kin can receive their inheritance. You can orient close friends and relatives on selling and transferring these currencies if there is no existing account. You need to provide information regarding their digital wallet and the secret key. It is recommended that you separate the data for both and keep the secret key offline. Furthermore, your executor must be able to access the information. Take note that online information is prone to hacking.
#3. Hire an attorney.
Scout and hire an attorney who has experience in incorporating cryptocurrency into estate plans and wills. Ensure that the lawyer can guide you in the whole process to ensure that your loved ones can secure and inherit your crypto assets. It is recommended that these assets be placed under joint ownership rather than transferring them straight away. This will allow access by either or both beneficiaries during their lifetimes. However, take note that this will affect the tax burden. Ask the attorney how cryptocurrencies are taxed. For crypto trading platforms that you can use, click here.
#4. Set up the digital wallet of your heirs in advance.
Your next-of-kin can inherit digital currency; however, note that this is not similar to a traditional currency. Your loved ones should be knowledgeable about cryptocurrency and set them an account with Gemini or Coinbase where they can store it and convert it into another form of currency. Orient them on how much is left and what type of currency it is.
#5. Alleviate the tax burden on cryptocurrency.
Your cryptocurrency may experience a value increase since the day you purchased it. When you transfer it to your next-of-kin, the value steps up to the current market value. They only have to pay taxes in the value increase when they receive it.
#6. Record cryptocurrency transactions.
It is good practice if you keep track of every transaction that you make with your cryptocurrency. Details include the date of purchase, the amount you paid for the crypto coin, the fair market value on the date of transfer. Be reminded again that your executor knows the information regarding your digital wallet and secret to gain access to the cryptocurrency. You can store your purchase records and digital wallet information in a digital vault, plus the instructions on where the secret key is stored. Furthermore, provide your executor with the password to access the digital device that keeps your secret key.
#7. Leave it as charity.
According to the current IRS rules, donating cryptocurrency to a charity will not result in capital loss or gain. If you have held bitcoin for at least a year, you can obtain a tax deduction for the digital currency's fair market value when you donate it to charity on the date of donation. Your charitable organisation will receive it at its appreciated, fair market value without having to pay capital gains.