We’ve had quite a few clients come to us in the last few years to help them plan with bitcoin and other valuable digital assets. Most of the time the clients are interested in the value of digital assets and are intentionally investing. But in some cases people end up with the assets by accident.
One of our clients is a mom whose son died holding several million dollars’ worth of “altcoins” – one of the other digital tokens specific to a blockchain project. She had no idea how the assets worked or why they had market value, but at the time she saw us, those tokens were worth more than $3,000,000. (Much of it would be subject to capital gains tax if she were to sell it.) We’ve had surviving heirs find digital assets in online accounts from someone who died and they needed help securing and liquidating the assets. In another case we had a client who received over $50,000,000 million in bitcoin through a divorce decree. (Which makes you wonder if that bitcoin habit contributed to the divorce!)
When bitcoin and the rest of the cryptocurrency markets went parabolic in 2017, the financial markets and popular culture were captivated by this new class of assets. Many people made (and many subsequently lost) significant wealth when the crypto bubble of 2017 popped. Most of the cryptocurrencies – valuable digital assets that represent alternative forms of money or business equity – have lost at least 70% of their value from December 2018. Some have entirely ceased to exist!
Once mainstream news outlets and social media platforms became sources of news about crypto and blockchain in 2017 massive money poured into the markets. Much of what drove the rapid rise in market value of bitcoin and other digital assets was fueled by new investors who wanted a piece of the action.
But even as the bubble popped, lots of folks figured out that the most established cryptocurrencies – again, like bitcoin – continue to trade at more than 400% of their previous market lows. Many investors still see cryptos as a viable asset class for their portfolios. They understand the volatility, but they see cryptos as an asset class with significant upside potential. Other people with crypto holdings didn’t even acquire them intentionally. Some clients inherit them in a crypto wallet when a loved one dies, and in some cases a divorcing spouse is awarded crypto through a divorce proceeding.
However they’re acquired, cryptoassets present significant challenges for asset custody. Failing to create a clear plan for succession usually results in the assets being irretrievably lost if an investor dies without planning in place. The law is usually murky at best; in most cases laws addressing tax treatment, custody and succession, and transmission of cryptoassets between parties simply don’t exist. Technology remains far ahead of the law.
Digital assets – cryptographic currencies, digital investment proxies, “non-fungible” tokens, or otherwise – are only going to become a larger and more diverse market. The cryptoasset & blockchain tech industry is expanding rapidly and valuable digital assets are getting more diverse and more complex; they certainly aren’t going away. Major global corporations and financial institutions are currently investing heavily in the industry, so all of us – investors, family members, fiduciaries, and advisors – will all be hearing a lot more about blockchain, cryptoassets, and digital value. It’s imperative that those who have valuable digital assets plan proactively to make sure those assets successfully transition to loved ones and if they want to make tax-leveraged sales during their lives, creative planning is mandatory.
Far from inclusive, there are some helpful crypto-related resources listed below:
Smith + Crown research: “the world’s leading blockchain research organization”
Coin Center.org: “…the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency…
Block’tivity: Alternative blockchain activity tracker (not based on market capitalization)
cointelegraph: Cryptocurrency and blockchain industry news
StateBlockchainLaw tracker, by Womble Bond Dickson
State cryptocurrency tracking service, by National Conference of State Legislatures
Lexology Blockchain Monitor blog