With the growing popularity of Bitcoin and other forms of virtual currency, the impact it will have on one’s estate planning is becoming a more relevant issue. You want to make sure your investment is passed on to your heirs, but when it comes to cryptocurrencies, there are a few items to take into consideration.
Hart David Carson, has helped numerous clients throughout Illinois construct effective estate plans, and we have the knowledge and expertise needed to factor virtual currencies into one’s estate. We can assist you when it comes to minimizing tax liability and ensuring your legacy is passed on to your heirs.
Nature of Virtual Currency vs. Traditional Assets
In a statement from the IRS, virtual currencies, including Bitcoin, Ethereum, Ripple, etc. are all considered personal property for tax purposes. This means that rather than treating it as actual currency backed by the U.S. government, it acts more like your house, car, or other personal possessions when figuring the impact it will have on your estate plan.
Virtual currencies are also anonymous, which means that unless you tell someone about it, it’s going to vanish with you when you pass on. It’s very different from a bank account, which your beneficiaries can gain access to after you pass on simply by calling the financial institution. They need to be made aware of its existence and given the access keys to it.
The way Bitcoin and other virtual currencies appreciate or depreciate may also have an impact on your plan. The taxable gains your beneficiaries are responsible for depends on its value at the time of your passing, not when you initially purchased it. This can be a benefit if it appreciated since your initial purchase, but if it depreciated, then it can mean an unnecessary tax burden for those who receive it.
Making Plans for Your Virtual Currencies
When making plans for cryptocurrencies in your estate, the abovementioned items are important to consider. You will want to make sure you handle it in a way that doesn’t create an undue burden for your beneficiaries while keeping estate and capital gains taxes to a minimum.
In the state of Illinois, one item to consider is the state’s Prudent Investor Rules. The law essentially requires the executor or trustee to diversify your investment portfolio. Likely, your virtual currencies will be considered an investment, and under the law, your executor will often be required to sell and diversify it unless you make specific provisions in your will or trust documents otherwise.
You also need someone who is familiar with the technology. While it may be considered an investment asset, it may be best to entrust your bitcoin to someone who is experienced in handling digital assets rather than traditional properties.
If your estate includes virtual currencies, our attorneys can assist you with working those into your plans. We provide expert legal guidance on the structuring of trusts, will and probate documents, and other important aspects of your estate.
It’s vital not to delay your estate planning—the sooner, the better. For more information, contact Hart David Carson, today.
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