Cryptocurrency has become increasingly popular in recent years. These digital assets are popular not just with experienced traders, but with everyday folks hoping to strike it rich with the next initial coin offering (ICO).
Part of the intrigue and appeal of cryptocurrencies are their anonymous nature. However, that anonymity means that if you don’t take the proper steps when drafting your estate plan, your cryptocurrency investments be lost in cyberspace when you pass away.
California is one of the few states that has put laws in place to address digital assets. Based on the Uniform Fiduciary Access to Digital Assets Act (UFADAA), California law lets people authorize someone to access their digital assets (a “digital fiduciary”) under certain conditions. This means that Californians can take steps in their estate planning to assign someone to disburse their cryptocurrency and other digital assets as they designate.
Most people do this via a trust, which contains the digital assets, designates a trustee and directs that trustee regarding whether to continue to invest the assets for future disposition or to immediately disburse them to heirs and beneficiaries after their death.
Naturally, given the secretive nature of cryptocurrency, the holder of the currency needs to provide the designated trustee(s) with the information needed to access it and make transactions. This involves placing usernames, security codes and other information in a secure location where the appropriate person(s) can access it when the time comes.
Don’t forget to consider the tax consequences for your estate both under state and federal law. The government is well aware of cryptocurrency. Don’t assume that it will fly under the radar. The Internal Revenue Service (IRS), for example, taxes cryptocurrency as tangible property. The value of your estate for tax purposes will include your cryptocurrency’s fair market value as of the day you pass away.
California estate planning attorneys can provide information on how cryptocurrency in estates is taxed under California law. They can also give you valuable guidance on how to include it in your estate plan so that your loved ones and others can reap the rewards of your investments.