Bitcoin has gone in value from less than 1 cent in 2010 to a high of $20,000 in 2017, to a value at the end of July 2020 of nearly $11,000. Now the U.S. Congress is holding hearings about the digitization of this buck so cryptocurrency is now an increasingly important financial tool for individuals and companies. Planning to get cryptocurrency nevertheless, has been failed and cryptocurrency lost. This has created stories of individuals, who lost their computer hard drives containing tens of thousands of bitcoins now worth millions, sifting through mountains of garbage. To avoid having you heirs, who are less knowledgeable than you, from making this error, integrate cryptocurrency into your estate plan to carry on the benefits and avoid the dangers of cryptocurrency.
First, preserve the benefits of cryptocurrency. Cryptocurrency is exceptionally secure, but that safety is in jeopardy if the private key or seed phrase is carelessly recorded. Together with the right private seed or key term, anyone can get into the cryptocurrency, so planning and processes must include how to procure this information. Also, like money, cryptocurrency is not traceable. There’s no digital or paper route linking the parties together in a transaction involving cryptocurrency. To preserve that privacy, you’ll need to plan that other documentation from the trade doesn’t reveal those identities, or that advice is privileged. Additionally, unlike hard money, moving cryptocurrency takes just moments and there are few, if any, move prices. Care needs to be taken that the entities that are used in preparation do not wind up re-creating the delays and prices of hard currency.
Also Read: Are Cryptocurrency Loans Taxable Or Not?
Secondly, avoid the risks of cryptocurrency. Since cryptocurrency, such as precious metals and other commodities, can differ tremendously even during the course of a day so cryptocurrency should be treated like stock in private business and other assets which are volatile in nature. Additionally, since cryptocurrency exists outside of government regulation, no government is responsible for losses incurred by scams, theft, or other malfeasance. Other sources of security are required to insure against losses like those incurred from the Mt. Gox bankruptcy caused by the theft of 850,000 bitcoins worth roughly $450 million.
Trusts and other planning devices have difficulty owning cryptocurrency, particularly if the Prudent Investor Rule applies. Also, cryptocurrency is a tax as property rather than as money by the IRS for tax purposes. This usually means that the fair market value is put by conversion into U.S. dollars at”a reasonable exchange rate” and trades involving cryptocurrency are subject to the capital gains taxation regulations. This necessitates particular tax provisions to be drafted into trusts, partnerships, LLCs, and other things.
So, if you, or your own business, own bitcoin or some other cryptocurrency, your estate, business succession, and financial plans need to reflect that.