Estate planning is only effective if it includes all of your assets. In most cases this is not a big deal. Major assets like your home have a deed that clearly establishes legal title. Other liquid assets such as a brokerage account are maintained by a trusted third party that must follow certain regulatory standards.
How Cryptocurrencies Work
What about assets without clear legal title or a central repository? Yes, we are talking about Bitcoin. More generally, we are talking about “cryptocurrencies,” which are digital assets recorded on a publicly available ledger known as a blockchain. Bitcoin is perhaps the best known of these “virtual” currencies, but there are believed to be thousands of cryptocurrencies presently available throughout the world.
Unlike a traditional bank or brokerage account, cryptocurrency users store their wealth in a virtual “wallet” comprised of complex cryptographic keys. Without the private key, there is no way for anyone to access the virtual currency associated with the wallet. Since there is no central authority regulating the cryptocurrency, there is no way to associate an individual identity with the wallet the way you would a bank account. However, many users keep their cryptocurrency with a third-party exchange, which in some cases offer bank-like services and may be able to provide access without the need for the private key.
The Law and Cryptocurrency
Although many people see cryptocurrency as a way of keeping their wealth secret, it is still an asset that counts as part of your probate estate. More precisely, the Internal Revenue Service classifies cryptocurrency as “property” rather than actual currency. This means that when the user dies, the value of any cryptocurrency must be assessed and reported at the date-of-death value for probate and tax purposes. If any cryptocurrency is sold by the estate during probate, any gains or losses must also be reported.
The major problem, however, is identifying cryptocurrency assets and gaining access to them. Ideally, a cryptocurrency user will keep written instructions on how to access their wallets, including any private keys. You should never rely on third-party exchanges to provide access, as they may be located outside the United States and not subject to local laws.
It is also a good idea to revise your will to specifically mention your cryptocurrency holdings and how you wish to dispose of them. You may also wish to transfer your cryptocurrency assets into a revocable living trust. Again, the important thing to remember is that your designated fiduciaries should be aware of your cryptocurrency holdings and have the means to access them after your death.
Speak with a Madison Estate Planning Attorney Today
The estate lawyers of Krause Donovan Estate Law Partners, LLC practice law in the areas of Probate, Wills, Estate Planning, and Trusts. We assist clients in and around Madison, Wisconsin with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.
To attend a free estate planning workshop or to receive our client planner to assess your estate planning mindset, contact our office by calling (608) 268-5751 or use our online contact form.