Perlin Estate Planning

How Do You Put Bitcoin in Your Will?

“Cryptocurrency is now a major force.  However, there are still some discrepancies in relation to  its overall impact as a currency.”

Secrecy is the key to bitcoin or cryptocurrency. It’s invisible, so there’s some degree of mystery surrounding this new type of money.

A question that is being asked more frequently these days, is what happens to your cryptocurrency when you die? What if that’s your main asset—not real estate, or physical money?

Bankless Times recently reported in the article, “What happens when your estate is cryptocurrency?” that cryptocurrency like Bitcoin is stored in virtual wallets.

A wallet has a combination of random characters called a “public key” required for sending or receiving the currency. There’s another key, called the “private key,” which is like a password you’d use to access your account.

Imagine that a cryptocurrency owner dies, without divulging their “private key.” This could mean the heirs will have a tough time gaining access to the funds.  They would actually never get to it.

That is why it’s so important, as part of your estate planning, to put your “private key” details into your will. This is safer that making a note of it somewhere, which could easily be discarded and lost forever.

Another option is to put the “private key” on a flash drive, so it’s in physical form.  However, there are also risks with this, like the “private key” being deleted. There are third-party exchanges that many Bitcoin investors use which act like banks. They keep the “private key” for the customer.

You should also tell your family that you have cryptocurrency in a wallet, because a third-party service won’t announce to your next of kin that you have cryptocurrency.

Handling your estate when you only have cryptocurrency can be tricky, but there are ways for you to do it.

Reference: Bankless Times (March 6, 2018) “What happens when your estate is cryptocurrency?”

What’s a Bitcoin IRA?

“When you think IRA investments, you're probably not thinking bitcoin. With a self-directed IRA, investing in the skyrocketing currency could be an option. But should you go for it?”

It seems that everyone is talking about bitcoin. However, not everybody understands exactly what bitcoin is and how it works, says Kiplinger in its recent article, “The Bitcoin IRA: 5 Essential Facts You Need to Know.”

Bitcoin is a peer-to-peer system through which transactions are executed directly between users. There’s no central administrator, unlike the U.S. dollar, which is produced and managed by the U.S. Treasury and the Federal Reserve. Bitcoins can be exchanged for services, products and other currencies. In addition, this cryptocurrency or “virtual currency” can also be used as an investment.

One way of investing in bitcoin that’s become increasing popular, is the use of an individual retirement account (IRA). While investments in a traditional IRA are handled by the financial institution through which the IRA is established, a self-directed IRA (SDIRA) lets investors buy any asset permitted by law. A SDIRA can hold both conventional assets (stocks and bonds) and alternatives, like gold and bitcoin. However, there’s technically no such thing as a bitcoin IRA. There’s only the SDIRA that can be used for investing in cryptocurrency. If you’re thinking about this, consider these points.

1. SDIRAs are evolving. SDIRAs are flexible and can hold diverse investments. Many investors are intrigued with the idea of investing in bitcoin.
2. Bitcoin is rising in value. A single bitcoin has gone from a value of 8 cents in 2010 to over $6,000 today, so more people see it as a form of investment. But experts say that a correction could come any day.
3. Bitcoin IRA investment viability is suspect. Although bitcoin values have increased dramatically, it’s uncertain how much longer this will last. If you’re looking to invest your IRA in bitcoin, it would be wise to keep it limited to a very small amount of your entire portfolio, because of its speculative nature.
4. Bitcoin is banned in some countries. Australia and Canada explicitly permit bitcoins and bitcoin transactions, but Iceland and China prohibit the cryptocurrency or its trading. It’s permitted in the United States, but there’s been a constant debate on how to regulate it. A 2014 IRS guidance stated that it “does not approve IRA investments,” but the agency doesn’t explicitly prohibit them either.
5. The IRS is OK with IRA investments into Bitcoins. There’s not really much in the way of specific legal restrictions in the U.S. Currently, the IRS only prohibits IRA investments in life insurance and collectibles like stamps, artwork, metals, and coins. Therefore, you’re technically allowed to use your SDIRA to invest in bitcoin, since it’s not specifically named in either of the prohibited investment categories.

Be careful! Bitcoin is very speculative, and you should invest only after careful consideration.

Reference: Kiplinger (November 27, 2017) “The Bitcoin IRA: 5 Essential Facts You Need to Know”

Estate Planning and Bitcoins: Strategy for Taxes, Asset Distribution in Miami, Coral Gables, FL

Some people treat Bitcoins like currency and spend them as such. However, planning for an estate that contains Bitcoins is different than planning for an estate that contains traditional currency in the form of dollars.

Bitcoins are very popular in some circles. The original premise was that Bitcoins were to be a digital currency that people could use on the Internet in the place of dollars.

A key benefit was that Bitcoins were to be untraceable and uncontrollable by any government.

That original premise has not entirely come to pass, but many people do have large amounts of Bitcoins either for use as a type of currency or as investments.

Recently the Wills, Trusts & Estates Prof Blog pointed out that Bitcoins need to be planned for differently in an estate plan in an article titled "Some Tips On How To Plan For An Estate Containing Bitcoin."

The tips include:

• Although many people think of Bitcoins as currency, the IRS does not and has ruled that Bitcoins are property. The difference has potential tax consequences and must be planned for accordingly.
• An estate planner needs to know specifically about any Bitcoins owned to ensure that they are planned for and not lost.
• Bitcoins often require an encryption key and password for access. Consequently, those need to be passed on to the appropriate parties or transferring them to the intended beneficiary might not be possible.
• A power of attorney should specifically state that the attorney in fact has the authority to manage the Bitcoins.
• If Bitcoins are part of the assets of a trust, the prudent investor rule might require that they be diversified into other investments.

If Bitcoins are part of your estate, then contact an experienced estate planning attorney to ensure that they are identified and distributed as you intend.

Live in South Florida? I can help! Call me (305-443-3104) so I can make recommendations to protect your Bitcoins and ensure all of your assets are properly planned for in your Estate.

• I'm an exceptionally experienced Florida Bar Board Certified Estate Planning Attorney,
• I'm a Florida Bar Board Certified Elder Law Attorney, focusing on ALL legal issues related to aging,
• have prepared over 4,000 estate plans in 30+ years in practice,
• have administered over 600 estates through Probate, and
• am a Certified Financial Planner Professional™, plus
• I am also a Florida Certified Public Accountant (CPA).

Of course, if you would like more information about General Estate Planning in South Florida, I have a very informative website you are welcome to visit for more information.

Reference: Wills, Trusts & Estates Prof Blog (July 29, 2015) "Some Tips On How To Plan For An Estate Containing Bitcoin."