| Guest columnist
You have probably heard the horror stories of massive and devastating personal cryptocurrency losses.
One story that has garnered international attention in recent years centered on the untimely death of Matthew Mellon, the bank heir and former chairman of the New York Republican State Committee Finance Committee. In the early years of cryptocurrency, Mellon bought $ 2 million worth of XRP, a US-founded cryptocurrency. Mellon died unexpectedly in 2018 after a long battle with bipolar disorder and substance abuse. At the time of his death, the cryptocurrency he bought was worth $ 500 million. Mellon distributed the private keys for accessing this cryptocurrency in vaults at several banks, unfortunately none of which was documented. To this day, this fortune is inaccessible.
While this story serves as an extreme example, scenarios like this one are becoming more common as the popularity of the cryptocurrency grows exponentially. A new study shows that 46 million Americans own the most popular cryptocurrency, Bitcoin. And to be honest, people get rich from these investments. In the last year alone, the value of Bitcoin rose astronomically by 440%. Therefore, developing an estate plan to include crypto assets is absolutely essential.
What are the key elements in developing an inheritance plan for your crypto assets?
The most obvious and important part of setting up crypto assets for an inheritance plan is documenting the location of the crypto asset and the passwords or “private keys”. (2) a hardware wallet, (3) a mobile wallet, (4) a local software wallet.
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Regardless of the storage chosen, access to the cryptoassets is controlled by the private key. The big advantage of the private key is that it is almost impossible to hack. The disadvantage is that if you lose, misplace or forget your personal private key, your crypto assets will be completely inaccessible. not even the cryptoasset exchange can restore your key.
Next, it’s important that you communicate with your estate planner to understand where crypto assets are kept and how to access them. Your trustee (ie, executor or trustee) should be given specific authority to access digital assets and online accounts in accordance with the Florida Trustee Access to Digital Assets (“FFADAA”). The estate planning documents should specify to whom the assets are to be transferred and, if necessary, select a special trustee who is familiar with this type of asset to manage these assets. Because of the nature of the information provided to the trustee about the key private information, very careful consideration is required in selecting a trusted trustee. This is also extremely important when choosing a power of attorney in the event of disability.
After all, the IRS views cryptocurrency as an asset. Therefore, careful consideration must be given when determining the basis of such a property, as capital gains tax will be due when it is sold. Under current law, when beneficiaries receive these assets as part of an inheritance, the cryptocurrency may receive a “top-up”, which eliminates lifelong capital gains.
The world is changing fast. Cryptocurrencies are another example of this. Like any other asset, cryptocurrencies need to be protected. Without careful planning and regular updates with your estate planning attorney, immeasurable wealth can be lost.
Stephen J. Lacey, JD, LL.M-Tax, Executive Director, is with the Lacey Lyons Rezanka law firm.
source https://thedailytradingnews.com/3-key-elements-for-crypto-in-estate-planning/
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