Cryptocurrency has become a popular form of financial investment in recent years. If you were clever enough to invest in Bitcoin in 2010, your investment might have grown at a surprisingly high rate—$1,000 invested then would be worth millions now.
With this increase in wealth, more people investing in cryptocurrency are looking to pass their crypto-assets to loved ones after death. But including cryptocurrency assets in an estate plan is not as straightforward as including traditional assets, such as your house or bank account.
What Does Cryptocurrency Mean for My Estate Plan?
A cryptocurrency is a digital currency that can buy goods and services but uses an online ledger with strong cryptography to secure online transactions.
Crypto-assets, including cryptocurrencies and non-currency blockchain tokens (i.e., NFTs), can hold significant family wealth. But because of the untraditional means by which crypto-assets are stored, there are challenges to securing, transferring, protecting, and gifting that wealth as part of an estate.
If you have a valuable cryptocurrency account, you must take steps to protect that wealth by putting protections in place so that your loved ones will understand that value and take appropriate care to maintain and maximize your digital assets upon your passing.
They must know these crypto-assets exist, how to find them and what you want them to do with them. In addition, the loss of crypto-assets could be disastrous for a family’s legacy, so to keep digital assets safe, including them in your estate plan is a must.
Cryptocurrency Under Florida Law
Under Florida law, cryptocurrency is not considered the same as the dollar currency in your bank account. In fact, it is treated very differently than cash, insurance benefits, or other investment assets. Florida and federal law consider cryptocurrency personal property rather than a currency, which affects how it is treated and taxed after your death.
If you store your private key online (i.e., using a password management app), this “hot storage” will be considered intangible personal property, like a copyright, patent, or account receivable. Whereas, if you store that key offline (i.e., on a USB device or hard drive), this “cold storage” is instead tangible personal property, the same as your books or shoes. This distinction is important for estate planning, and a good estate planning attorney will walk you through the implications and requirements for each.
Can a Trust Protect Your Cryptocurrency Assets?
One option to protect your crypto assets and ensure they are correctly treated after your death is to put them into a trust. But without specific language, the Florida trust cannot hold cryptocurrency. The language also needs to ensure that your loved ones can access the private key in a way that does not violate cybersecurity laws. Your crypto estate planning documents will need to give a representative with specific authority to log in as you and manage your digital assets.
As the grantor who creates the trust, you will generally retain the authority to manage your assets, including crypto assets, while you are alive. The use of a revocable trust does help to avoid some of the questions surrounding the authority of the person who has the private key. After you pass, this authority transfers automatically to a trustee appointed in your estate place. However, the trust and the appointed trustee still need to be given access to the private key.
Lastly, a digital asset-based estate plan, whether a trust, will, or another advance directive, should include detailed instructions for what beneficiaries will do with crypto-assets upon a safe and successful transfer of ownership. In addition, it’s essential to consider the tax implications of transferring and possibly selling digital assets in the estate plan so that your loved ones won’t be faced with any surprises.
Estate planning with cryptocurrency is complex. But without a plan in place to address your crypto-assets, a significant amount of your wealth may be lost. The help of an attorney well-versed in different types of cryptocurrencies, hot and cold storage, as well as estate planning and asset protection. To learn more about crypto-assets and estate planning, call our experienced estate planning lawyers at Mortellaro Law today: 813-367-1500.
