By Robert D. Kaplow, Esq.
So your shopper purchased some sort of cryptocurrency (Bitcoin, Ethereum, Ripple, and many others.). He hopes that the worth will skyrocket and signify a sizeable portion of his property. If that dream involves cross, how do you deal with these bitcoins for property planning functions? (For functions of this text, all cryptocurrencies will likely be known as bitcoin.)
One of many main promoting factors for buying bitcoins is its anonymity. There isn’t a paper path and there aren’t any bodily property to the touch. Nevertheless, this turns into a significant downside when your shopper dies. How does his household entry the bitcoins? Do they even know that he owns bitcoins? Transparency and disclosure are key! Your shopper want to tell his advisors and his household that he owns bitcoins to allow them to act appropriately. Extra importantly, he must make it possible for his bitcoins might be accessed within the occasion of his incapacity or dying.
Bitcoins are accessed by the usage of a “non-public key.” Successfully a password. Bitcoin customers retailer the non-public keys in “wallets.” Wallets are typically saved on-line. As soon as somebody has entry to the pockets, the bitcoins might be bought, offered or transferred. Thus, it is vital that your shopper’s private consultant (executor), trustee or trusted member of the family has entry to the non-public key. Don’t lose observe of the non-public key or the onerous drive that incorporates it. There are quite a few tales (in all probability a few of them apocryphal) of individuals shedding hundreds of thousands of dollars by promoting their computer systems solely to later keep in mind that the onerous drives had their non-public keys. (This additionally occurred to Leonard in an episode of “The Massive Bang Concept.”)
It’s our suggestion that you just encourage purchasers to arrange an in depth letter — to be stored in a protected deposit field or different safe location — indicating any non-public keys and bitcoin transactions. This letter must be up to date periodically. The letter also needs to present detailed directions on find out how to entry the bitcoins, together with any passwords or codes wanted to take custody of the bitcoins.
It’s also our suggestion that your shopper’s bitcoin holdings be transferred to a revocable residing belief. This may keep away from the need for having to go to the probate courtroom to switch the bitcoins on his dying.
Whereas we typically seek advice from bitcoins as “foreign money,” the Inner Income Service held in Discover 2014-21 that bitcoins are property, not foreign money. The tax implications of this ruling are that you’ve got achieve or loss on the sale or switch of bitcoins and should keep data to indicate your tax foundation in bitcoins. For instance, in case your shopper used $2,000 of bitcoins to buy a tv and the bitcoins price you $500, you could have a achieve of $1,500 that must be reported in your earnings tax return.
Whereas bitcoins could be the foreign money of the long run, it’s crucial that your purchasers take the required steps at the moment to make sure their households can entry the bitcoins on the purchasers’ dying.
Robert D. Kaplow is a shareholder at Maddin Hauser regulation agency based mostly in Southfield, Mich. His follow is concentrated in property planning and private and company earnings tax planning.