For estate planning and tax advisers, there’s been a bit of new ground broken in recent years; a bit of digital ground. For some time, we’ve encouraged our clients to not underestimate the value of their digital assets. Even if they don’t have a music trove of the best music from the 70s and 80s, odds are, they have photos stored online and if they do any kind of business at all, there are bound to be user names and passwords that loved ones may need access to in the event of your death. You may not have every Eagles song on your iPhone or in the cloud, but you may have forgotten those Amazon gift cards that are patiently waiting for you to make use of. Maybe you have that small insurance policy that you bought four years ago and the insurance agent’s name is stored in that password protected Excel book? Just as we remind clients of the potential goldmine online that they’ve forgotten about, a new player enters. We’ve all heard the hype about digital currency. Many of us are still a bit less drawn to it, but you should know, Bitcoins are indeed digital assets.
They’re as important as any other asset you have and in order to provide a complete estate plan, it’s crucial that you not overlook them. And make no mistake – this isn’t a temporary phase, like say…8 track tapes (which, by the way, used to be the only vehicle for Eagles’ music), these new types of assets are here to stay.
Bitcoins are Digital Assets, But There’s More
Did you know there are more than 200 virtual currencies in use around the world? Bitcoin is by far the most recognized and certainly widely used, but this is a growing sector in the online world. Don’t let Bitcoins’ less than ideal press scare you, despite its dramatic rise and fall in recent months, it’s being used far more often than you realize.
In fact, did you know folks have been using Bitcoins when ordering food online since 2010? Ten-thousand Bitcoins equated to $41 in 2010 and paid for two large pizzas ordered online and delivered by a Papa John’s restaurant in Jacksonville, Florida. Today, the price for a single Bitcoin can cost you as much as $1,000. The value fluctuates, of course, just like cash, but you wouldn’t dream of not including all of your assets in your estate planning.
Even the Fed Gets It
A new IRS Notice 2014-21 was released earlier this year to provide direction on how U.S. tax principles will work with virtual currency. It treats Bitcoin – and all of the other virtual currencies – as property for federal tax purposes. Its value is calculated in U.S. dollars. That puts a new perspective on the virtual cash we’ll never hold or touch, yes? The challenge for governments moving forward is how foreign currency gains or losses will be calculated for federal tax purposes.
Virtual currency like Bitcoin is still in its infancy; just look at the stumbling blocks it’s had in recent years. You can be sure, though, this is temporary and someday soon, you might be calling your estate planning lawyer to ensure those important digital assets become part of your overall estate. When you do, we’re here to help.