Cryptocurrency is getting popular among all generations of people. Still, when it comes to securing and planning for Crypto Wallets and Exchange accounts, most people find themselves perplexed by the process of starting with an Estate Plan for Crypto Assets.
With a market value of $3 trillion in 2021, estimated to increase to $6.8 trillion by 2025, Cryptocurrency holds immense financial value for many people. If you’re planning to create wills and estate planning for your Crypto Assets but need a more comprehensive approach to understanding the process, then the following points of our estate planning checklist 2022 might help.
What is Estate Planning?
Estate planning is a medium used for assisting people and families prepare for the proper handling of an estate after a person bids farewell to the world. As harsh as it may sound, estate planning is a crucial tool that helps ease the transition the family experiences when a loved one passes away.
It’s also a helpful tool for ensuring that an estate will be adequately taken care of and left as a legacy for your family. No matter how large or small an estate is, working to establish a suitable estate plan can help everyone involved deal with the aftermath of the estate much more efficiently without any hassle.
Below we will discuss “what are five elements of an estate plan” that you need to remember as you make an estate plan or want to assess the one you already have.
5 Steps for Basic Estate Planning
One of the most vital points you can include in your family’s estate planning checklist is to ensure that their financial and estate planning needs are taken care of. If you don’t do this, your loved ones could face financial hardship after you’re gone. Here’s how to take control of your finances and create an estate plan that will ensure that everything works out as it should:
- Inventory your stuffThe first step in your simple estate planning worksheet to a comprehensive estate plan is inventorying your assets. It includes all your property, cash or savings accounts, investments, and other assets that could be used to pay off debts or provide for heirs if you die.
It’s essential to do this before you decide on how much money should be left out of the estate for each person in line after yourself (or even before). It will help ensure enough funds are available for anyone who may need them—whether they are spouses or children. It also ensures there aren’t any gaps in coverage from people who died unexpectedly without leaving behind enough savings beforehand.
- Account for your family’s needs Make sure you have enough money to care for your family while you start writing your estate planning checklist. Also, make sure your family members are aware of your wishes and that they understand what it means to carry out those wishes if you’re no longer alive or able to make decisions on their behalf. Have a will in hand so that the people closest to you know how much money you owe them and when it needs to be paid out (or given away).A will also provide clarity about who gets what property after death, which can help ensure that everything goes well in case something happens suddenly or unexpectedly—such as losing one’s spouse due to illness or injury—and allows families across generations not only continue access but also peace of mind knowing that all their hard work went into setting things up properly before passing away.
- Establish your directivesIf you are not comfortable writing a will or would like to ensure that your estate plan is up-to-date and reflects your current desires, consider making advanced health care directives. In this document, you can tell doctors what kind of care they should provide if you become terminally ill or suffer other incapacitating conditions. You may also want to include instructions regarding end-of-life care in the event of severe illness or accident.It’s also essential that all parties involved in managing assets after your death understand their roles in keeping those assets away from creditors and ensuring they get adequately distributed according to state law.
- Review your beneficiariesThe Legal aspect of sharing Crypto accounts’ details has already been concluded, but there are several decisions to be made before carving out your Will or Trust:Not much progress has been observed in providing Beneficiary Designations option by Cryptocurrency platforms. The Executor of your Estate needs to have access to the private keys of your Crypto accounts to manage or distribute them. Sharing such confidential details is crucial, and you need to choose a reliable Executor who can understand technical details and follow your wishes for asset distribution.
All devices you use to access Cryptocurrency Wallets and Exchange accounts should be kept safe after your demise or incapacitation. You can include this in your free estate planning documents. Still, it’s better to share these little details beforehand with your family in case some device containing important information is ignorantly thrown out.
Considerations have to be made for storing your Estate Plan somewhere your family would be able to access it. You could store it with your attorney, in a cabinet, a locker, or a cloud locker.
Note your state’s estate tax laws.
IRS describes Cryptocurrency as property, and transactions are taxable if:
- Cryptocurrency is used for purchasing goods or services.
- One Cryptocurrency is exchanged with another.
- Mined or forked Cryptocurrency is accepted.
- Cryptocurrency is exchanged for Fiat Money.
Taxes are exempted if:
- Cryptocurrency is donated to charity or gifted to someone.
- Fiat Money to buy Cryptocurrencies.
- Cryptocurrency stored in one wallet gets transferred to another.
The impact of Cryptocurrency on your estate tax is not hefty, and your beneficiaries receive the asset at Fair Market Value for the period after your death or incapacitation. It is not advisable to avoid taxes by mismanaging transaction logs; instead, try to keep detailed records of your cryptocurrency transactions and pay income taxes timely to avoid troubles for your estate and family by IRS audit in case you pass away or become disabled.
- Work with a team of professionals.A good estate plan is written by an experienced professional with access to the proper legal and accounting information. It will help if you hire a team of professionals: a lawyer, financial planner, and accountant. The more people involved in your process, the better your chance for success.It would help if you choose your professional team wisely as you think about how do you structure an estate plan. Because each person brings different skills and knowledge into play when creating an estate plan that will work well for you and your loved ones after death occurs.
It’s also important to remember that these professionals are not interchangeable. You should work with a lawyer specializing in estate planning, not just any lawyer. The same goes for financial planners and accountants.
Is Crypto a Probate Asset?
Cryptocurrencies are probate assets, just like your real estate and other assets you own in your name. It means that before it can get legitimately transferred to your beneficiaries after your death, it must go through Probate (the legal, court-mandated process of dividing your estate). The probate process is typically sped up and made more straightforward for everyone involved when an estate plan is in place.
Furthermore, none of the most well-known cryptocurrency exchanges currently support any beneficiary designation for crypto assets, including transfer on death (TOD) or payable on death (POD) accounts, which are popular ways to keep traditional assets out of Probate.
How Do I Protect My Crypto Assets?
A proper guide simplifying every technical step along with account details is required to pass your cryptocurrency wallet to your beneficiaries. A Will can dictate how your Crypto Assets have to be distributed among your family members and by whom. Still, it eventually becomes a public record which is why it’s not a great way to provide instructions to access your crypto accounts and your crypto index fund.
A Trust is more beneficial as it does not have to go through Probate, has no risk of leaking private details of your Cryptocurrency accounts, and allows faster access of your assets to your beneficiaries. With the volatile nature of Cryptocurrency, it is better to include a Trust along with a Will while planning an Estate Plan for your Cryptocurrency.
Is Crypto considered Real Estate?
As we all know, crypto is a digital currency that acts as a medium of exchange between parties. It can be used to purchase goods, services, and assets. You can consider cryptocurrency or crypto hedge funds just as digital assets. These assets are similar to real estate, but there isn’t a physical form of Cryptocurrency yet. These assets are valuable due to their scarcity and the fact that Cryptocurrency can be utilized to buy and sell items and services, including properties on the open market.
And that’s the reason why cryptocurrencies are not considered real estate, even though one can use them to buy and sell real estate. It is because cryptocurrencies are not backed by anything tangible and, therefore, cannot be considered “real property.” However, you can always include cryptocurrency or crypto mutual funds in your estate plan and other assets, including money, real estate, and private property.
Now you know what are three elements of an estate plan and what does estate planning involve. If you’re unsure, look for an attorney, well versed in cryptocurrencies and the law. That could be the best protection plan you have devised.