TIPS OF THE TRADE: HOW TO HELP CLIENTS AVOID TAKING CRYPTOCURRENCY TO THE CRYPT
By Amy L. McEvoy*1
Bitcoin, the most well-known cryptocurrency, is constantly in the newsâwhat is its value, is it too late or too early to invest in it, how the 2017 tax overhaul imposes income tax on exchanges of one cryptocurrency or another, etc. But are we paying enough attention to cryptocurrency in the context of estate planning? What should be done with this asset, which can be worth millions, to avoid inaccessibility on death?
Remember the old adage "possession is nine-tenths of the law?" When it comes to bitcoin, title and ownership are largely irrelevant. Instead, possession/access to coins is what matters. In the world of bitcoin, if you lose control of (i.e. possession/access to) your bitcoins, you have lost them. In fact, according to a November 2017 report by Chainalysis,2 an estimated 3.8 million bitcoins are in the void. In today’s value, where bitcoin is trading at over $10,000 per coin, that’s over $38 billion dollars of assets lost. To help your clients avoid losing these assets at death, it is important to understand some basics about bitcoins and estate planning for this unique asset.
Bitcoins likely fall in the category of digital assets, a subject on which much has been written, particularly following California’s 2016 adoption of the Revised Uniform Fiduciary Access to Digital Assets Act ("RUFADAA"). While some of the general advice about digital assets applies to bitcoin (i.e., make sure your clients have granted their fiduciaries authority over digital assets on death), bitcoins are unique. And, before you stop reading because you believe that only criminals are investing in bitcoin, note that a January 2018 report by Chainalysis found that the proportion of bitcoin transactions related to the "dark web" (where people often engage in criminal activities) has fallen from 30% to under 1% between 2012 and 2017. Other sites similarly report that criminals have dropped bitcoin in favor of other cryptocurrencies.3 In the author’s experience, many individuals now are buying bitcoins as an investment, just like traditional securities or foreign currency transactions.