It’s not often that the use of a new type of currency becomes widespread, but the quick rise of cryptocurrency has swept through countries all around the world. While not everyone invests in cryptocurrencies, many people do and its popularity is becoming increasingly commonplace. As more people begin to use cryptocurrency, more will have it to leave as part of their estates when they pass away, but cryptocurrencies pose unique challenges in estate planning.
What Is Cryptocurrency?
To understand cryptocurrency, you first have to know about cryptography and encryption. Cryptography is the practice of securing communications from being read by other parties. Encryption is one commonly used method of cryptography. Encryption is a process where a message or piece of information is encoded in such a way that only authorized parties can access it.
Cryptocurrency is a digital currency where certain encryption techniques are used in place of a central bank. The encryption techniques are used for secure financial transactions, to control the creation of additional units, and to verify the transfer of assets.
Bitcoin, one of the most popular cryptocurrencies, was released in 2009, but since then an additional 4,000 types of cryptocurrencies have been created. With so many types of cryptocurrencies and absolutely no centralized control, it’s easy to understand how this type of asset can complicate estate planning.
Cryptocurrency and Estate Planning
When assets go through probate, this is a public process, which makes information regarding all assets available in public records. However, cryptocurrencies are designed to protect the privacy of owners, and identification of cryptocurrency holders is not required for ownership. In this way, cryptocurrency and probate don’t mix. Making cryptocurrency ownership public could compromise the security of the owner and make them targets for hackers. Cryptocurrency also has specific tax implications. The Internal Revenue Service (IRS) considers cryptocurrencies as property rather than currency, and they are taxed accordingly.
The protections of cryptocurrency mean little if loved ones can’t get access to your assets. Digital inheritance is quickly becoming an issue for individuals who don’t spend time planning for digital assets as part of their estates. In this digital age, it’s possible for individuals to have digital assets such as websites, social media accounts, and cryptocurrencies that have significant value. But how do people get access to these accounts after a loved one’s passing? There is no singular organization that can grant heirs, beneficiaries, or even an administrator of an estate access to a deceased individual’s cryptocurrency. This means if your loved ones don’t have access to your digital assets such as cryptocurrency before you pass, they won’t be able to get to it after you die. But this doesn’t mean you should send out your password to all of your loved ones, as that would compromise your security. The best way to make sure loved ones will have access to all of your digital assets is to work with an estate planning lawyer. An experienced estate planning lawyer will be able to devise strategies and create protocols that allow loved ones to obtain access to all of your assets after your passing.
Start A Comprehensive Estate Plan Today
Estate plans involve more than just determining who receives houses, cars, or money after a loved one passes away. The reality is there are many types of assets you might want to pass on to your loved ones, and each one will need to be carefully planned for. To get started on a comprehensive estate plan today, contact Hensley Krueger LLP.