Trust Estate

What's In Your Wallet? – Estate Planning For Cryptos, Tokens

Tom Olchon, July 15, 2022

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How should assets such as bitcoin and NFTs be handled when it comes to estate planning and wealth transfer? How does modern technology affect the kind of considerations that advisors have wrestled with for decades?

The rise of digital assets – such as non-fungible tokens (NFTs), cryptocurrencies such as bitcoin, various “smart contracts” and other entities – has certainly created many headlines. The wild gyrations in cryptocurrency prices, and the slump in the price of some “stablecoins,” have generated a lot of controversy. To the frustration of some crypto-skeptics, most of these digital entities refuse to go away. And the rise of the sector raises questions about how they can be measured, valued and held inside the sort of structures which are common to estate plans. 

To consider the estate planning dimension to digital assets is Tom Olchon, who is managing director and wealth and fiduciary advisor at Evercore Wealth Management and Evercore Trust Company

The editors of this news service are pleased to share these views and invite responses. Join in the conversation! The usual editorial disclaimers apply to views of outside contributors. Email tom.burroughes@wealthbriefing.com

Some early investors in cryptocurrency and non-fungible tokens, or NFTs, have accumulated significant wealth. But the extreme volatility and evolving tax treatment of these assets are good reasons to think long and hard about managing them in the context of estate planning. Generational gifting strategies and charitable planning may save on estate taxes and allow for further appreciation of these assets outside of the estate.

But first, how can such volatile and often illiquid assets even be valued for estate planning purposes? It’s an essential step in proper planning, as the inclusion of crypto and NFTs may potentially cause an otherwise non-taxable estate to become taxable. Even with a step-up in basis, there may be income tax considerations. Only a qualified appraiser should make that call, and IRS guidance is still a bit murky as it relates to a qualified appraisal, so please take extra care when dealing with this area. 

It’s worth stressing here that getting tax planning right is critical, and failure to comply, even as regulations evolve, can have extremely serious consequences, including forcing the use of an additional and unintended gift tax exemption, or even causing tax to be owed if the IRS determines that the value of the gift exceeds the available exemption.

The custody and security of cryptocurrencies and NFTs present another planning challenge. Striking the right balance between preserving the security of private blockchain keys and other access points now, and providing access for a third-party fiduciary later, isn’t easy. But at the very least, the executor of an estate that includes crypto and/or NFTs will need a road map to help identify, locate, and eventually access these digital assets.  

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