The Practical Planner: How to Handle Digital Assets in Estate Planning

Release Date: March 18, 2025

Hosts:

• Thomas Coldman – Head of Community at wealth.com, recognized as a Top 100 Advisor by Investopedia (2022, 2023), 2023 Young Advisor to Watch, and Top 23 Millennial Financial Advisor by Business Insider.
• Tyrone – Estate Planning Expert with extensive experience navigating the complexities of digital assets.

1. Introduction to Digital Assets in Estate Planning

In this episode of The Practical Planner, Thomas Coldman and guest Tyrone delve into the increasingly critical topic of digital assets within the realm of estate planning. As cryptocurrencies like Bitcoin gain mainstream acceptance, the necessity for advisors to comprehend and manage these assets effectively becomes paramount.

Thomas Coldman emphasizes the growing importance of cryptocurrencies:

“More and more people own it. I would say of the clients I work with, well over 50% coming in come in owning crypto.”
[00:10]

He underscores the inevitability of cryptocurrency integration into personal estates:

“My belief is that right now, some people own it, and in 10 years, everybody's gonna own some. And if that's the case… you're gonna lose clients.”
[00:38]

2. Tax Implications of Cryptocurrencies

One of the primary challenges with digital assets is their complex tax treatment. Both hosts highlight how cryptocurrency transactions can lead to unexpected tax liabilities due to the nature of crypto exchanges.

Thomas Coldman explains:

“The IRS says you took cash, you bought Eth, you sold Eth for cash, you bought Bitcoin… there are multiple taxable events inside of that.”
[03:30]

He further advises on the necessity of specialized tax software:

“There’s a lot of softwares out there that can be connected and can be used… highly recommend.”
[04:15]

The discussion points out the absence of the wash sale rule for actual cryptocurrencies, contrasting it with traditional ETFs:

“If you own actual bitcoin, you can buy at 100,000, it drops to 90, sell, buy back again, grab that loss… it’s very different.”
[04:38]

3. Ownership Methods and Estate Planning Structures

The hosts explore various methods of owning cryptocurrencies and their implications for estate planning.

Thomas Coldman outlines the primary ownership methods:

1. Exchange-Held Crypto:

   “This is probably the most simple. But you're not having beneficiary designations set up on these.”
   [05:00]

2. Cryptocurrency ETFs (e.g., IBIT):

   “This one's the easiest. If you own it in an ETF, you have a beneficiary designation.”
   [07:00]

3. Cold Storage Wallets:

   “Most advisors say, ‘Hey, you should own it on a wallet.’”
   [07:50]

Tyrone adds depth to the conversation by emphasizing the necessity of including digital assets in estate plans:

“When I review wills or trusts, one of the first things I look for is do you have a digital assets provision.”
[17:00]

4. Security Measures for Digital Assets

Securing digital assets is a multifaceted challenge. The hosts discuss best practices to safeguard cryptocurrencies, ensuring seamless access for beneficiaries.

Thomas Coldman provides practical advice:

“You never want those two together [wallet and seed phrase]. Sometimes people have a safe at home that has the wallet. They’ll have a safety deposit box that has the seed phrase.”
[09:30]

He warns against storing sensitive information digitally:

“Don’t store this on your computer. Like, put it in your notes app, put it on a drive… because a lot of people end up hacking your computer.”
[10:45]

Tyrone underscores the importance of comprehensive access planning:

“Everything is very fractured. Maybe eventually you'd be able to get access to it through a judge. But making sure that you have this whole digital life set up.”
[16:00]

5. Common Risks and Scams

The prevalence of scams targeting cryptocurrency holders is a significant concern. The hosts highlight recent trends and protective measures.

Thomas Coldman shares alarming statistics:

“I know people who've lost 10 to $100,000 of crypto this year.”
[13:30]

He describes sophisticated phishing tactics:

“They send an email and say, like, hey, you got locked out of X place… they're gonna log in and steal people's crypto.”
[12:15]

Tyrone corroborates the risk by sharing real-life incidents:

“Our CEO texted me the other day asking me to go buy some gift cards.”
[13:01]

6. Updating Estate Planning Documents

Modern estate planning must evolve to encompass digital assets. The conversation emphasizes updating wills and trusts to include specific provisions for digital holdings.

Tyrone stresses the urgency:

“Most trusts, most wills don't have [digital asset provisions]. So it's one of the biggest and easiest things to update an estate plan.”
[17:36]

Thomas Coldman advises advisors on their role:

“You don't have to become an expert… but you do need to understand the basics of how taxes work, how the estate planning works.”
[18:20]

He warns of the consequences of neglecting digital assets:

“If you choose to ignore it, one, that's a risk and two, you're going to lose clients.”
[18:40]

7. Final Thoughts and Advisor Recommendations

In wrapping up, both hosts reiterate the critical role advisors play in navigating the complexities of digital assets within estate planning.

Thomas Coldman concludes:

“You need to be willing to learn and to help. You can't just ignore it because you don't like the asset class.”
[18:55]

Tyrone echoes the sentiment, highlighting the future prevalence of digital assets:

“It's a topic that is going to become more and more prevalent.”
[17:29]

They collectively urge advisors to stay informed and proactive to effectively serve their clients in an evolving financial landscape.

Key Takeaways:

• Educate Yourself: Advisors must familiarize themselves with the basics of cryptocurrencies, including tax implications and ownership structures.
• Secure Access: Implement robust security measures for digital assets, ensuring beneficiaries can access them without hurdles.
• Update Estate Plans: Ensure wills and trusts include specific provisions for digital assets to avoid complications and potential legal issues.
• Stay Vigilant Against Scams: Be aware of common phishing and hacking tactics targeting crypto holders and educate clients accordingly.
• Proactive Advisory: Embrace the inclusion of digital assets in estate planning to retain and grow client relationships in the digital age.

By addressing these facets comprehensively, The Practical Planner equips financial advisors with the necessary insights to adeptly handle the integration of digital assets into estate planning, ensuring holistic and future-proof strategies for their clients.