Bitcoin. Ethereum. Litecoin. Dogecoin. Bytecoin. Altcoins. Asset-tokens.
These are all digital assets, also known as cryptocurrency, and they’re a developing medium for exchanging value. As an Ohio estate planning and probate attorney, I’m not going to decide whether or not digital currency is a sound investment. However, if you own digital assets, it’s important that your estate plan accounts for and considers them, and addresses how they will be transferred upon your death. If they have value, they are part of your estate. But whether they are transferred according to the terms of your estate plan will depend largely on you.
The essential features of a cryptocurrency are the creation of limited entries in a database that cannot be changed without fulfilling specific conditions, and that they operate independent of a central banking system. A digital asset can be exchanged for another digital asset, for cash, often referred to as fiat currency, or for goods and services.
Cryptocurrency transactions are verified and recorded in a distributed database known as a "blockchain." The difference is that with digital assets, verification and storage of the blockchain is done on a peer-to-peer basis rather than through a centralized system.
There are different types of digital assets, each with their own respective benefits and drawbacks; but all cryptocurrencies function on the same set of principles.
Bitcoin was the first cryptocurrency, and it remains the most well-known. It was released to the public in 2009 and has recently increased in value almost 500% during 2017.
While there are different ways to own cryptocurrency, all require a unique security identifier. If the key falls into the wrong hands, the assets can be stolen or lost. If you own digital assets or are considering acquiring them, it’s important that you give some thought to how to pass them on, and how they will be addressed in your estate plan.
First, it’s important to recognize that, at least for now, the IRS does not recognize digital assets as currency. Instead, cryptocurrency is treated as property. This means that for purposes of wealth transfer, your Bitcoin (or other digital assets) will be valued at the fair market value on the date of your death. Whether the IRS knows about your Bitcoins is another matter entirely.
Second, make sure that your probate and estate planning lawyer, estate executor, and/or trustee are aware of your Bitcoin. With traditional assets, your estate representative can walk into your financial institution and access your accounts. But when it comes to Bitcoin and other digital assets, they’ll need the private key or passphrase. If no one knows you own digital assets, those assets will die with you.
This doesn’t necessarily mean you need to tell your heirs and beneficiaries about the existence of digital currency right now. Instead, you can entrust the existence of this property to your lawyer. As an Ohio estate planning and probate attorney, I can safeguard your secrets, and include provisions in your Will or Trust document that address digital assets, make sure they are treated as property, and ensure that they are distributed according to your wishes.
Regardless of who you tell about the existence of your Bitcoin, it’s important that someone other than you knows how to access this property.
It’s also a good idea to make sure that whoever you designate as your Power of Attorney has the ability to access your Bitcoin. Make sure that the document granting someone Power of Attorney explicitly references digital property. Also, be sure the person will be able access to your private key or login information.
Like anything else that deals with probate and estate planning, don’t procrastinate. We all hope to live long lives. But the reality is that none of us know how long we’ll live, or when incapacity will strike. It’s important to plan for your future, and to take steps to ensure that your property and assets are passed on according to your wishes.
If you own digital assets and have questions about how to address them in your estate plan, contact Wolfe Legal Services today. I have more than 20 years experience as an Ohio probate and estate planning attorney, and frequently advise people on estate planning in the digital age.
I work with people throughout greater Columbus, including Dublin, Bexley, Upper Arlington, New Albany, Marysville, Hilliard, Delaware, and Newark, and throughout Franklin County, Delaware County, Pickaway County, Fairfield County, Union County, and Licking County. Call (614) 263-5297 any time or complete our online form.