Cryptocurrency in Estate Planning
Brooklyn Estate Planning Lawyers
Cryptocurrency is the newest frontier in investing. There are numerous cryptocurrency platforms that provide investors with opportunities for high returns. These new investment tools have little regulation, however, and they have created some confusion for investors making their estate plans. If seniors do not plan carefully, their heirs may not be able to access these virtual assets. The experienced estate planning lawyers at Korskinsky & Klein help investors come up with a comprehensive plan for all of their digital assets.
What is Cryptocurrency?
Simply put, cryptocurrency is a digital form of currency, enabled by blockchain technology. Investors purchase virtual tokens, which can increase or decrease in value depending on supply and demand. The concept is similar to trading shares of stock but relies on cryptography to keep transactions secure and protect investors’ privacy. Tokens are stored in individual wallets, which can only be accessed by a digital key or access code. Without this key or code, the wallet remains locked, even in the event of the investor’s death.
Blockchain technology creates a digital ledger that records all transfers, including the buyer and seller’s information, to compile a complete record of a person’s holdings. The ledger is stored on a decentralized network of independent computers, and there is no physical record of the transaction. These features are enticing to investors who want to keep their investments secure, but the lack of centralization and oversight by a bank or governing body can create logistical concerns for estate planning.
Challenges with Inheriting Cryptocurrency
The U.S. Internal Revenue Service (IRS) views cryptocurrency as personal property, rather than cash. For the purposes of inheritance, they are treated more like a car than a bank account and will be subject to the same inheritance taxes as other forms of property. You cannot designate a beneficiary on a cryptocurrency wallet, and unlike a bank, there is no customer service department you can call to gain access if the key is lost.
Investors may be tempted to keep their wallet and digital key information to themselves to protect their assets but being too secretive can have consequences. Without those details, the wallets stay locked; there are currently an estimated 5 million inactive Bitcoins, which may have appreciated exponentially since their initial purchase but cannot be accessed by anyone. There have been several situations recently in which a person with large digital holdings passed away, and their families had no recourse to claim their fortunes. More than 115,000 investors lost access to their accounts when the founder of Quadriga CX – and the only person with the key to unlock the investments – died suddenly.
Transferring Cryptocurrency to Beneficiaries
In order to ensure that their virtual assets pass onto their heirs and do not go to waste, they should develop a roadmap of where all of their wallets are and the access codes to each. The list can be kept by an estate lawyer or a trusted person, but it must be accessible in case of the investor’s death. The investor can then name beneficiaries for their digital portfolio or for specific assets in their will so that they go to the appropriate person.
There are some other ways that investors have leveraged the blockchain technology to transfer assets to their heirs, including:
- A Dead Man’s Switch is a program that automatically emails you at pre-set intervals and requests a reply. Cryptocurrency investors can set these to check death records if no reply is received and, if one is found, automatically transfer digital assets to another party.
- Some token exchanges, such as Coinbase and Kraken, are creating policies that allow for the transfer of assets when provided with proof of the owner’s death.
- An M-of-N or group signature policy allows wallets to be unlocked if multiple designated signatories provide their information, meaning control of the assets would not be left in one party’s hands.
Brooklyn Estate Planning Lawyers at Korsinsky & Klein, LLP Have the Knowledge and Resources to Handle Cryptocurrency Matters
There are some security risks associated with each of these methods, and investors must decide what is best for them. The estate planning lawyers at Korsinsky & Klein, LLP can help investors devise a comprehensive plan to protect all of their assets and ensure that their final wishes are carried out. We will work tirelessly to make sure all of the necessary steps are taken to allow your virtual assets to be transferred to your beneficiaries.
With offices conveniently located in Brooklyn, Manhattan, and Lakewood, New Jersey, we help individuals and families throughout Brooklyn, Long Island, and Westchester, New York and New Jersey with all of their estate planning needs. Call us today at 212-495-8133 or contact us online to speak to a Brooklyn estate planning lawyer.