Tell Your Estate Planner About Your Bitcoin
Lots of people, from 20 to 90, are buying Bitcoin (BTC). Some hope to see the value grown and cash in sometime in the future, others see it as a novelty. Regardless of why you may have Bitcoin, don’t run the risk of having it lost forever because you were too secretive about it.
We recently heard of a case in probate and included 27 BTC valued at about $250,000 and no one had the key to access the BTC. It’s entirely possible it is lost forever. Accessing BTC after someone dies is much more difficult than accessing a bank account!
Here are some steps you should take to make sure your loved ones can manage your BTC when you die or if you become incapacitated due to an illness or injury:
• Tell your estate planning attorney if you have BTC and where you have saved the access information including password, username and key code.
• Give your trustee or your power of attorney the key, the authority to access the BTC and instructions on how to spend it; if you don’t trust a single person with all of the access information, you can give one person the key and another person your username and password.
• Make sure it is listed as personal property on relevant documents
• Watch for rulings about how Medicaid and VA will consider BTC and disclose ownership when you apply for benefits.
For those who don’t know much about Bitcoin, here are a few basics. Created in 2008 Bitcoin is the grandfather of all of the 1,300 cryptocurrencies. Cryptocurrencies are used to buy and sell ‘stuff’ on electronic blockchains. A blockchain is a set of transactions which are completely transparent to everyone connected to the chain but private outside of the chain. This basically boils down to electronic bartering.
What makes BTC attractive?
• Cryptocurrencies are not regulated or connected to a government or country.
• Blockchain transactions are anonymous.
• It’s virtually impossible to forge a transaction on a blockchain.
• The supply of Bitcoin is limited to 21 million. This is true for actual Bitcoin, not all cryptocurrencies, but for those who have lost faith in a government that can ‘print more money at will’ this very appealing because Bitcoin will in theory hold its value.
And Bitcoin does have value. In 2009 $1 would buy 1,309.03 Bitcoin. In 2010 it would cost 10,000 BTC to buy a $25 pizza, however on March 8, 2018, one Bitcoin was worth $9,261.00. The value for a single Bitcoin has been as high as $20,000.
The IRS has defined BTC as personal property, and it is, therefore, considered an asset during probate or an asset to protect in your Estate Plan. It is possible to transfer BTN to heirs via the blockchain and avoid probate entirely but the transfer is useless if those who inherit don’t have the access information – read on.
You acquire BTC on a currency exchange and keep it in a ‘wallet’ which you access with a username, password and/or a unique key code depending upon the wallet. These exchanges only allow a single owner, so your BTC cannot be co-owned with your spouse or partner.
The type of wallet you use can be very important to you and your heirs. You can store your BTC on the exchange in what is called a custodial wallet, but these can be hacked. It is recommended that you transfer your BTC (actually the key code) from the exchange to a personal digital wallet which can be a program on your computer (hackable) or a piece of hardware (not hackable). Or, you can write it on a piece of paper.
The key (the 26-digit code) is the asset that has value. It is the asset your heirs must have in order to access your BTN when you die so, it’s important to find a way to let others know where you stored the key and how to access the wallet.
To make sure your cryptocurrency is not lost forever when you die, consult your estate planning attorney to update your will, trusts and your power of attorney with sufficient details explaining what you own and where the access information is.