The popularity of cryptocurrency has soared in recent years with more people buying and selling it than trading in the traditional monetary terms. Here are three things to consider about cryptocurrency in relation to your estate plan:
Estate Tax Consequences
Transferring your cryptocurrency to other people, during life or after your death, could impact income, estate, and gift tax consequences.
Income Tax Consequences
Essentially, the Internal Revenue Service (IRS) contends that the sale or exchange of a “convertible virtual currency” may result in taxable gain or loss just as the sale or exchange of other property would. Whether they categorize the gain or loss as a capital gain or loss depends on whether the convertible virtual currency was a capital asset in the hands of the taxpayer. The government may not consider the virtual currency a capital asset in the hands of the taxpayer. For instance, with inventory or other property held for sale in a business, the taxpayer would realize ordinary gain or loss.
Potential Estate and Gift Tax Consequences
The IRS considers virtual currency to be property. So, federal gift and estate tax laws apply. Because (until quite recently) cryptocurrency has been quickly increasing in value. Thus, many people, whose estate would otherwise be valued at less than the estate and gift tax exemption amounts ($12.06 million for individuals and $24.12 million for married couples in 2022), must now include provisions in their estate plans for minimizing gift and estate tax consequences.
If you own cryptocurrency which substantially increased in value, or which could substantially increase in value, discuss your concerns with an estate planning attorney. We can determine ways so you can minimize potential income, estate, and gift tax consequences.
Laws Governing Cryptocurrency Are Slowly Inching Along
Technological advances move at a faster pace than the law. Consider recent articles in Forbes Magazine and Entrepreneur. At the same time, as cryptocurrency increases in popularity, more people hold cryptocurrency which must be considered part of their estate. Because people store cryptocurrencies in such a way that does not tie personally identifying information to them, cryptocurrency owners must inform their beneficiaries that these assets exist. Otherwise, they could be lost forever at the owner’s death. Further, owners (and their estate planning attorneys) must provide specific instructions for accessing the cryptocurrency, or the information could also die with the owner. Finally, because managing cryptocurrency requires some level of technological expertise, appoint a trusted decision maker who has basic cryptocurrency knowledge. Make that decision to generously provide for your loved ones after you die.
These factors create unique challenges when it comes to dealing with cryptocurrency in your estate plan. A comprehensive estate plan ensures that you and your beneficiaries know about and control what happens to your cryptocurrency upon your death.
About Martha Jo Patterson, Elder Law Attorney in Anaheim, California
An estate planning lawyer ensures that your retirement planning progress smoothly and that your assets remain protected upon your death. If you have a life insurance policy, you will need to name your special needs trust as the beneficiary so that your child will receive your death benefit without reducing their government benefits. With our years of experience, our team at the Geisler Patterson Law firm will assist you in planning your special needs child’s future. Special needs care is a broad term, and we will ensure oversight of your child’s individual needs. If you have been Googling “special needs trust lawyer near me,” be sure to give us at Geisler Patterson Law in Orange County, CA, a call at (866) 452-9657. Our firm will protect your family like a mama bear protects her cubs.