Estate planning is rarely a field that is on the front lines of financial trends, owing in part to the long-term nature of the practice. While some industries often strike while the iron is hot in a particular financial area, estate planning may take a few years to begin addressing these issues properly. Such is the case with cryptocurrencies and their applications in estate planning, which are only now gaining widespread usage in mainstream markets.
While many individuals throughout the country are now making forays into cryptocurrency, the nature of these financial instruments makes them difficult to include in estate planning because they are currently less regulated than other assets. Some individuals choose to use these assets as a way to shift wealth from states like California, which features fairly high tax rates, to other states like Tennessee, which has relatively low tax rates.
In many cases, it is still possible to transfer cryptocurrency to a beneficiary in another state before liquidating it into standard currency, essentially reducing the tax burden on that asset. This does come with its own share of risks, and the laws that surround this practice may change rapidly as cryptocurrencies continue to gain mainstream appeal. Most notably, cryptocurrencies have value fluctuations much more exaggerated than the dollar, so the advantages of avoiding taxation with this method are compromised.
If you have interest in including cryptocurrency in your estate plan, be sure to understand all the implications and risks of doing so. An established estate planning attorney can help you gain a detailed understanding of the issues at hand and guide you as you assemble a plan that represents your interests with cryptocurrency and shifting taxable income.
Source: Puget sound Business Journal, "Beware of these cryptocurrency estate planning pitfalls," Steven Schindle, March 12, 2018