Advancements in computer technology have dramatically changed all aspects of society. It has even made a significant difference in estate planning strategies. Now with the advent of digital assets, those looking to create an estate plan in California will have to be up-to-date on all of the legal implications of owning digital assets.
One of the most recent technological advents which has caused some confusion in this realm is bitcoin. There has been an ongoing battle over whether to classify bitcoin as a currency or as property. The Internal Revenue Service (IRS) has decided to recognize bitcoin as property rather than as currency, in accordance with IRS Notice 2014-21.
This is important to consider when creating an estate planning strategy because it means inherited bitcoin is valued at the fair market value for tax purposes. Therefore, this can change how capital gains taxes are applied once a beneficiary decides to spend his or her bitcoin. Those who hold bitcoin which has appreciated in value may want to hold onto the bitcoin for heirs, while those with depreciated bitcoin may want to spend the bitcoin as soon as possible.
It is also important to inform an executor or trustee about the existence of bitcoin that one owns. This means one will have to make sure the executor or trustee will have access to one’s private key or password to one’s bitcoin wallet. Without this access the trustee or executor will not be able to distribute one’s bitcoin as instructed in one’s will. It is also important to give access to one’s appointed agent in his or her power of attorney document.
On the other hand, each person in California has different estate planning goals. These goals should always be the guiding principles for making decisions when creating an estate plan. Therefore, each estate plan should be customized to fit individual circumstances. Also, it is important to stay up-to-date on any changes to the law regarding estate administration, especially to any changes in the classification of bitcoin for tax purposes.
Source: coindesk.com, “5 Things Bitcoin Owners Must Do When Estate Planning“, Jeff Vandrew Jr., July 28, 2015