Over the last ten years, the financial community has watched the rise of cryptocurrency from an obscure concept to an alternative form of investment and payment. Bitcoin started out being worth less than a penny in 2010, peaking at a high of $20,000 in 2017 and settling at $11,000 by the end of July 2020. What is even more promising is that the United States Congress has started congressional hearings on the digitization of the dollar. If this happens, cryptocurrency will become a very important financial took for investors of all types.
Because of the instability that has plagued cryptocurrency, many people have overlooked planning for the future of their cryptocurrency accounts. Accounts have been neglected, and tokens have been lost. People have to get new computers, not realizing that discarding their old hard drives with thousands of bitcoins in their digital wallets have cost them millions of dollars. One way to keep this from happening in the future, especially if you are planning on leaving your cryptocurrency wallets to your heirs, is to make sure you integrate cryptocurrency in your estate planning.
Estate Planning Helps You Preserve The Benefits And Avoid The Risks Attached To Cryptocurrency
There is still a lot of mystery surrounding cryptocurrency for people who have never invested in or used it. While it is very secure as far as investments go, a user’s private key or seed phrase that is recorded in a careless manner puts that investment in jeopardy. All it takes is that that key or phrase to fall into the wrong hands and anyone can access your cryptocurrency. Estate planning helps you secure that information so that it is not lost, and your heirs can use it in the future.
Plus, cryptocurrency is untraceable. There are no electronic or paper trails that link the users involved in a transaction together. To maintain that privacy, you will need to plan out all of the documentation your heirs will need to access the cryptocurrency and keep the privileged information safe. Because transferring cryptocurrency only takes a moment, care should be taken by those planning for the future to make sure this process goes smoothly.
Treat Cryptocurrency Like It Is A Stock Or Other Asset That Is Volatile In Nature
Like precious metals and other popular commodities, cryptocurrency’s worth can fluctuate wildly. In an hour, Bitcoin’s worth, for example, could change 100 times. When estate planning, treat your cryptocurrency like it is a stock or other asset that is volatile in nature. Cryptocurrency is still currently outside government regulation. If your tokens are stolen, scammed, or affected by some other issue, the government is not responsible for your loss. It would help if you investigated different ways of insuring your cryptocurrency.
Additionally, it is hard for a trust or other estate planning device to own cryptocurrency. The trust has to be written with very specific language in order to hold it. While it can be done, you don’t want that language to be too broad, which could exempt the trustee from any damages down by willful neglect. Since cryptocurrency is taxed as property and not currency, it is subject to any capital gains tax regulations. All of this needs to be considered during the estate planning phase to make sure the right tax provisions are met.
Work With A Lawyer That Is Familiar With Cryptocurrency
When you start planning your estate, and you have cryptocurrency involved, work with a lawyer that is familiar with this investment vehicle. They will be able to help you set up a plan that will let you leave your cryptocurrency to your heirs without any hassle.