CA Estate Planning Blog

Friday, August 3, 2018

Exploring Crypto Trusts

What are the benefits of placing my cryptocurrencies in a trust?

Cryptocurrency has risen to extreme popularity in recent years, with one Bitcoin currently worth over 7,400 dollars. As cryptocurrencies continue to become a part of investor portfolios worldwide, the importance of incorporating digital assets in estate planning takes on more significance. The IRS treats cryptocurrencies as any other piece of property. Accordingly, the transfer of a Bitcoin or another cryptocurrency will trigger tax penalties. In an effort to minimize taxation and ease the transfer of cryptocurrencies to the next generation, some trust and estate planning lawyers are assisting in placing crypto assets into trusts.

Types of Trusts

Cryptocurrencies can lawfully be held in trusts under current California and federal laws, though this could change in the future. There are several potential types of trusts that you could transfer your crypto assets within. Living trusts are revocable trusts which are not taxed separately. You can transfer crypto currencies into a living trust without paying taxes on the transfer because the trust is not a separate taxpayer.

Alternatively, you could place your crypto assets within an irrevocable trust. An irrevocable trust can be either a grantor trust or a non-grantor trust. Non-grantor trusts will allow for a tax-free transfer of crypto assets, but the trust will pay separate taxes and distributions will be subject to taxation.

Taxation of trusts varies by state. California imposes a relatively high state tax, while some surrounding states offer lower options. In addition to potentially reducing your taxes, moving your crypto assets into a trust can ease the process of leaving these valuable assets to your heirs. Assets held within a trust will generally not be subject to probate, allowing for stress free transfer per the terms set out in the trust.

Incorporating Cryptocurrencies Within Your Estate Plan

Anyone who holds crypto assets needs to include these assets within their estate plan. While many cryptocurrency holders are drawn to the anonymity of these assets, that very characteristic can make them difficult to pass down to heirs. Without thorough planning for the transfer of these assets, they could potentially be lost forever. Contact an estate planning lawyer today for more information on incorporating cryptocurrencies within your estate plan.


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