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Asset protection and virtual currency

On Behalf of | Jul 2, 2019 | Wills

Bitcoin and cryptocurrency are terms that have entered the vernacular in recent years and are becoming recognized as forms of legitimate assets. The currency can be traded between owners or converted to legal tender. There are elements of it one might want to be aware of when it comes to asset protection and estate planning in California.

The value of bitcoin has experienced an extremely volatile period in recent years. In 2017, the value climbed as high as $14,156 for a single bitcoin from a low of $998. In 2018, the value sank to $3,200 and is climbing in 2019. For tax purposes, the IRS does not consider bitcoin as currency but as property and taxes it accordingly.

For estate planning purposes, one might want to move bitcoin holdings outside of an estate to help reduce the tax liability of the estate itself. Doing so protects the asset if the value greatly increases, though there is a risk if the value falls. An instrument that allows one some protection is called a Grantor Retained Annuity Trust (GRAT). A GRAT enables one to pass the appreciated assets to one’s beneficiaries without having to pay a gift tax, presuming the asset grew at a rate greater than the assumed rate of return, which is currently 2.8%.

Bitcoin and cryptocurrency will undoubtedly become more prevalent in society moving forward. People in California wanting to know more about asset protection in general and the protection of virtual currencies in particular may wish to consult with an attorney who has experience in those areas. A knowledgeable attorney can review one’s overall financial holdings and make recommendations for an estate plan that works for the present and allows for changes and modification in the future.


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