Cryptocurrency has taken the world by storm over the last few years. While digital currencies have become more popular, there are still a lot of gray lines when it comes to how it works. You exchange digital tokens for products or services like money. You store it in a bank like traditional money. Can you also inherit it? Here’s a look at how cryptocurrency inheritance works.
Can You Inherit Cryptocurrency?
First, can you actually inherit cryptocurrency? The answer is yes. However, you have to take the proper steps to prepare for your digital tokens to be passed on. Oftentimes, cryptocurrency is lost when the holder dies. In fact, there are some instances where hundreds of millions in crypto have been left in limbo.
This is due to an error on the part of the cryptocurrency holder. Unfortunately, it is up to the account holder to make additional plans for their digital coins. Most of the time, the heirs don’t even know they have inherited any crypto simply because they were never told.
How Cryptocurrency Inheritance Works
Unlike traditional currency, crypto inheritance needs to be planned for well in advance. The crypto owner should be sure that all of their heirs know about the existence of their cryptocurrency holdings. You should also be sure any cryptocurrency you hold is mentioned in your will as well.
With digital currency, there are a few other ways you can make sure your heirs are getting their fair share of your crypto. You can set up a kill switch on your crypto account. In the event of your death, the full amount in your account will be transferred to your heir.
There are a few companies seeking to mend the issue of cryptocurrency inheritance being lost. You can look into inheritance-focused projects that work with people to ensure their crypto is passed on to their heirs. Exchanges like Coinbase can make crypto inheritance easy with ownership transfers. They will ask for various documents to verify the death of the individual and the identity of the heir.
Now that we know a bit about how cryptocurrency inheritance works, what tax implications should you be prepared for when inheriting crypto?
Is Crypto Inheritance Taxed?
This is another gray area when it comes to cryptocurrency. The good-old Internal Revenue Service (IRS) doesn’t treat crypto as a traditional asset, but it does subject cryptocurrency to inheritance tax. How much money you’ll pay in taxes depends on the amount that was transferred and how the digital token was disposed of, meaning whether it was cashed out or not.
No matter what kind of inheritance you are leaving, it is a good idea to talk to your heirs about what they will be given. This is especially the case when leaving them investments and cryptocurrency.
Take the time to go over the basics of crypto with them before leaving them what you have in digital tokens. At the very least, they should know how to access their share and cash out if they want to do so. As always, taking the time to educate yourself and others will pay off.
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Drew Blankenship is a former Porsche technician and lifelong automotive enthusiast. Recently, he began writing for several websites and is enjoying the career change. He lives in North Carolina with his wife and their dog Enzo.