Q. My dad is, and always has been, a brilliant man. Despite his age, he keeps fit both mentally and physically. We hope he will live forever! That said, I will be the representative of his estate and here is what worries me. My dad is investing in cryptocurrency! I know nothing about it and, frankly, I am not interested in learning. I think it is a passing fad. When he dies and I am responsible for the distribution of his estate to my siblings, do I need to address the crypto? Help!
A. Your pop sounds wonderful, I hope you value all the moments you have with him. I also hope some of those moments are spent discussing his cryptocurrency investments. Crypto or digital currency (the terms are interchangeable) is not a passing fad. In fact, it seems that we, as a society, are moving in the direction of digital currency as a strong alternative purchasing and investment tool. At present, there are over 8,000 types of digital currency available representing billions of dollars in assets.
Using secure ledger transactions reflecting crypto or digital currency, you can buy a Tesla, an airplane and even real estate. The OCC (Office of Controller of Currency), which governs banks, recently issued regulations allowing banks to custody digital assets and Visa is developing a credit card that allows a consumer to spend digital cash by way of a credit or debit card.
The IRS is now requiring holders of digital currency to report income or capital gains earned on the sale of the currency and taxes will be assessed just as they are on more traditional forms of investments. You will see questions on your personal 1040 tax return asking if you hold or have held crypto or digital currency. So, as you can see, we all need to become familiar with this new form of legal tender. It is here to stay.
As a fiduciary, the person who will be responsible for the distribution of your father’s estate, you will be in charge of not only including digital assets in the estate for estate tax reporting but also how to handle the liquidation and/or distribution of the asset.
When your father buys crypto, he receives a digital key. Normally, this is a string of numbers, symbols and letters that represent his asset on the secure ledger. The key is irreplaceable and, if lost, his holdings are lost as well. I hope he is keeping the key in a safe place!
Your first step is to talk with your father about his investments in crypto to determine what kind of currency he holds and where the key is kept. When it comes time to settle his estate, you will value the assets as of his date of death and then either sell the currency or distribute it to his beneficiaries. If your father’s estate is in excess of $12.06 million, an estate tax will be due on all his assets, including the crypto.
While the digital asset world is somewhat new and evolving, estate planning attorneys are including language in their documents addressing these kinds of assets, or at least they should be. That said, it is worth making sure his estate plan is written so that you can deal with his digital assets when the time comes.
Cryptocurrency is the brave new world and I encourage you to learn as much as you can from your dad so you can effectively discharge your duties as his estate representative.
Liza Horvath has over 30 years’ experience in the estate planning and trust fields and is a licensed professional fiduciary. Liza currently serves as president of Monterey Trust Management. This is not intended to be legal or tax advice. If you have a question, call (831)646-5262 or email liza@montereytrust.com.
