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By Liza Horvath


To You, I Leave My Bitcoins


The world has a way of changing and, perhaps unfortunately, many changes are significant enough to warrant review and possible revision of your estate planning documents. Historically – and probably still true for most of us – life events like a death in the family, an unexpected windfall or a major change in family circumstances are triggers for revisiting an estate plan. Digital assets, however, are often overlooked by planning advisors and can be entirely out of view when considering our planning. Most of the time, the oversight does not result in any particular harm, but the impact of virtual currency, Bitcoin in particular, is changing every moment and in the not too distant future may be a part of everyone’s lives.


In March 2014, the Internal Revenue Service recognized the existence – and their ability to assess tax on – virtual currency. The IRS notice concludes that virtual currencies, including bitcoins, will be treated as property for gift and taxation purposes. For those unfamiliar with virtual currency or bitcoins, let me offer a primer: The Bitcoin system is a decentralized virtual currency where the “middle man” – banks, credit card companies or escrow services – is dispensed with and peers deal directly with other bitcoin peers to transact business. By dispensing with the intermediary the costs and fees for their services are removed along with other obstacles such as exchange rate risk if you are dealing with someone in another country. For example, if I want to buy a Triumph Bobber motorcycle from an owner in London, I use my “address” on Bitcoin to transfer coins in an agreed upon amount from my wallet to the London owner’s bitcoin wallet. The “ledger” for bitcoin users is public so he sees that I am transferring coin to his account and he ships the bike to me. The public ledger does not use names – only a string of numbers so while all can see the transactions, we do not know the name of the person holding a particular wallet.


Why should bitcoin or other virtual currencies be on your radar? Well, there is a huge amount of venture capital pouring into the virtual currency market and most of that capital is coming from banks. Many business publications – think Forbes, CNN – feel that virtual currencies – bitcoin, in particular – are here to stay. In fact, an added lending facility called Bitbond has just been launched. It appears to be the way of the future – at least for some of our buying, selling and borrowing needs. Many businesses, mostly those who buy and sell internationally, are turning to bitcoin.


A few things to consider about bitcoin in your life: If you want to buy and sell through a decentralized system, bitcoin may be the ticket and tax reporting – as per the IRS notification – is now fairly clear. If I buy the Triumph Bobber for $3000 worth of bitcoin – that is my cost basis and when I sell it for $5000 (maybe still using the bitcoin system), I will need to report a $2000 capital gain on my tax return.


Estate planning attorneys are also getting savvy about digital assets and, if you need to do estate tax reduction planning, some tools are available to pass your virtual currency to your beneficiaries in a tax efficient manner. Remember, however, if you have a bitcoin wallet or other virtual assets this information must be provided to your trustee or executor. Unless they know about your assets and how to access them – they could be forever lost.

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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