What should I know about bitcoin and estate planning?

by | Aug 6, 2015 | Wills |

According to IRS Notice 2014-21, bitcoins are not to be handled as currency in estate planning proceedings. Rather, they are to be viewed as property by courts. This creates some unique scenarios that New York estate planners who own bitcoin should be aware of.

First, you should keep in mind that bitcoin property will be transferred in accordance with wills and living trusts at the time of your death. However, you should also keep in mind the inheritance tax consequences that the recipients of the bitcoin will incur.

People who have bitcoin that has appreciated in value considerably since its purchase will benefit from the fact that heirs will not be charged capital gains taxes on the investment. Meanwhile, bitcoin that has not appreciated considerably in value will face tax liabilities relating to the value at the time it was received.

Second, it is important to advise your trustee and/or executor that you have bitcoins. Because bitcoin can be such a secret and an anonymous possession, the individuals who own it may not always tell anyone. If these individuals die, then the bitcoin could die with them. That is why it is important to tell someone that they exist, and there is no better person to tell than the executor of an estate. A great program called “Deathswitch” is also available. The service will notify heirs of your bitcoin after you have died, and you can even set it up to send your private bitcoin key to the appropriate person after you have died.

These are just two important things estate planners should do when it comes to incorporating their bitcoins into their estate plans. New York residents may wish to consult with a qualified estate planning attorney to learn more about the options available for their bitcoin.

Source: CoinDesk, “5 Things Bitcoin Owners Must Do When Estate Planning,” Jeff Vandrew Jr, July 28, 2015