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Transcript14 lines
- [00:00]
Tyrone
Foreign.
- [00:11]
Thomas Coldman
Welcome back to another episode of Practical Planner. I'm your host, Thomas Coldman. Here with me again is Dave Houghton. And today we're talking about digital assets. So if you follow the podcast for a long time, then you will see that we've done an episode here with Tyrone, but that episode was really focusing on, like, why advisors need to learn about digital assets, not necessarily some of the practical things that need to be done. And so in today's episode, we're going to talk about it. And I think easy to talk about this now. I mean, as of this episode, bitcoin's down quite a bit. It was at 109,000. Now it's down to 93,000. And if you listen, because you followed me for a long time, I've talked about bitcoin for about five straight years, every year. So this isn't just like some fad, but it is something that I think needs to be talked about, and especially because more and more people own it. I would say of the clients I work with, well over 50% coming in come in owning crypto. At least I have some clients who have millions and millions of dollars of crypto, and that's how they became wealthy. And the more that we see companies incorporated, I mean, there's all the talk about the US Government having a strategic reserve. And so if you want to be an advisor, that's relevant. I think whether you believe in it or not, you have to still help your clients understand how to manage it. 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, right, then if you ignore it, like a lot of advisors do, you're saying, here's a part of your financial life that because I feel like it's digital beanie babies. Digital beanie babies, which I totally disagree with. I think it's better gold. You're gonna lose clients. I can't tell you how many people have come to me saying, my advisor knows nothing about my bitcoin, knows nothing about how to manage it. And so I need to find somebody who I can at least have these conversations with. But anyways, hopping off the soapbox a little bit, I think it's important to just think a little bit before we go into the estate planning side. Just a few key things. Understand, on the tax side of crypto, one of the biggest ways to help your clients is help them understand that taxes are a lot harder with crypto because the exchanges aren't the same as everywhere else. Like we're used to investments and they give you gains and losses and they track everything really well. Most of the exchanges are pretty messy. The other issue is most people who own crypto, right, they buy an exchange, they send it to their wallet, maybe they send you another exchange, they sell, they buy something else. None of this is tracked very well. So there's a lot of softwares out there that can be connected and can be used highly recommend. You know, there's cointracker, there's a bunch of different ones that work tax wise that you want to make sure you help your clients set up right away. If not, they're going to have to go search years and years back to kind of create their own little like Excel sheet with all the cost basis and sales. The other issue is just education. With crypto, the average person who is very involved, they think that you can exchange currencies and you can, right? You can exchange bitcoin for eth, ETH for Solana, et cetera. But in the eyes of the irs, that's not an exchange. That's a taxable event. So if you say I took cash, I, I bought Eth at $1,000 and then I swapped Eth for Bitcoin at $10,000. The IRS says you took cash, you bought Eth, you sold Eth for cash, you took that cash, you bought Bitcoin. When you sold bitcoin to cash, that's another taxable event. So there's multiple taxable events inside of that. And you will see that clients don't understand that. And, you know, this is one thing I just spend time educating people on, even if they don't talk about this. Because what I learned is people are doing this in the background, and then all of a sudden we'll review their tax return and say, I know you sold a bunch of crypto last year. Like we wisen at your tax return. They'll say, oh, it wasn't a sale, it was an exchange. And then they have to go amend their taxes, they have to go backwards, and then maybe they have a large taxable event. Because the issue is when you do all these exchanges, you're not saving for taxes, right? Maybe that eth went from 100 to $1,000 exchange and you had that capital gain there, and then you had another one and another capital gain. And now all of a sudden they have a tax surprise and then crypto's down 30% and they're like, I don't want to sell now to come up with that tax liability. So there is A lot of complexities here. And on top of it, there's no wash sale rule. So that's another new thing, right? If you own the Bitcoin etf, there is wash sales. If you own actual bitcoin, you can buy at 100,000, it drops to 90, sell, buy back again, grab that loss, which is very, very different.
- [04:38]
Tyrone
And, you know, all this stuff is so foreign to so many people because it's just, you know, especially when it comes to estate planning attorneys. You know, I worked at Commonwealth for a long time. People couldn't. You couldn't trade in crypto. It wasn't permitted by compliance. And that's probably the case with a lot of broker dealers. And, you know, so advisors just have no incentive to understand these things. But it's just becoming more and more prevalent. And, you know, there are just things that need to be worked out legislatively. I'm sure, you know, when we're talking about estate planning, courts aren't going to understand these things. You know, custodians don't necessarily understand the aspects of funding. How are they taxed from, you know, how. How does it go through probate? So really important that, you know, advisors are aware of that their clients are going to own these things and they need to have some understanding of how they work and how to transact with them or they're going to get left behind.
- [05:48]
Thomas Coldman
Yeah, yeah, totally. And I mean, on the estate planning side of things, I think it's important to look at the different ways to own it, right? So, like, the first one is you buy Bitcoin on a Swan, a Coinbase, or whatever crypto you want, right? You buy it on exchange, you hold it on an exchange. This is probably the most simple. But you're not having beneficiary designations set up on these. So the important thing here is if you're buying on an exchange, you need your spouse or somebody else to know, hey, I own crypto. I own crypto on this exchange in my estate plan, I designated this to go to you, my spouse, or if both of us are gone, to go to my kids. That's a huge issue, right? Because if just your spouse knows and you pass away and then this goes to your kids, like there's not an easy way to get into it. When I go sign into Coinbase, for example, I have my login and then basically it sends, I have to go into multisig, right, and get a password, and that's how I get in for Swan. It's actually like login sends me an Email, Email gives me a code. I, I get that and then I have to go into my authenticator app and then I have to do that. So like you need to have this all built out to say somebody can get into my phone, somebody can use this authentication tool, otherwise nobody is going to be able to get in. And this is where I think advisors have to talk about it because I have double digit clients with over a million dollars in crypto, some of them with 3 to 10 million dollars. And there's people with significantly more than that. So like you could say, hey, I'm not going to learn about this, I'm going to help you on your estate plan. And because you didn't help your client, there's, there's probably lawsuits that could come after you for not helping them on this. And now they lost significant amounts of money.
- [07:27]
Tyrone
Absolutely, yeah. Not being educated on things that are prevalent and issues that come up is a potential liability risk. And then, you know, these are just more reasons why you need to have really comprehensive estate planning documents to provide access to these things. You know, 15 years ago, people weren't putting anything in their powers of attorney about digital assets or cryptocurrency because no one thought about it. Nobody thought that it would be a thing that you would need to account for. Now it's a thing where you need to update your estate plan and make sure that these types of issues are specifically accounted for. You know, if I become incapacitated, if I pass away, I give my agent, I give my executor, I give my trustee the authority to go access these cryptocurrencies, these social media accounts, these whatever the digital assets may be, to make sure that they're not stuck. Because in a lot of these circumstances where it wasn't thought about and the estate plan documents are stale, they might be stuck unless a judge grants them access.
- [08:43]
Thomas Coldman
Yeah, yeah. Okay, so we talked about one, the other one's, right? If you own IBIT or one of the ETFs, this becomes a lot more simple. Right? That's in a regular brokerage account or Roth IRA or something like that, you have a beneficiary designation. You know, I think for a lot of people this is a good starting place, Right. I think if you truly buy Bitcoin because you believe in what it stands for, you typically don't buy inside the ETF because you're kind of taking away some of those key benefits and you're paying a fee, which either way, anywhere you pay a fee. So I don't know If I like that argument. But you're paying a few fee to own one asset in an ETF. Typically, ETFs are like blending assets into one, and that's what you're paying for and some of the benefit, but that one's the easiest. The last way that people hold their crypto is typically on a cold storage wallet. And this is typically the recommendation, right? So most times as an advisor, when you're looking out for your client, you want to look out for safety of their assets, right? It's the same reason we look at banks and we look at FDIC insurance, right? If you say, oh, FDIC insurance doesn't matter, put all this money here, bank goes down again, that's probably a liability to you because you didn't educate them on the risk. Same thing, right? If you own Bitcoin on an exchange, it's not truly yours, right? The exchange owns that, you have the right to it. But until you take it off and put it in your own wallet, you don't have that direct ownership. So most advisors say, hey, you should own it on a wallet. If you've ever messed around with wallets, you realize why people choose not to use wallets because there is a lot of complexities that come with it. So basically you have this little wallet, you transfer it over, it has this key, or basically as a public key, and then it also has a seed phrase to get into it. The issue is you need both to get in. So let's say you move it to your wallet, you move houses, you lose your wallet, you're out of luck, right? Or you move, you have your wallet, you don't have the seed phrase, which is normally a ton of words, you lost that, you're out of luck, right? And this is the issue that happens, right? How do we make sure we keep our crypto and how do we make sure we don't lose it? This is where other providers come in. So CASA is one of them. And it basically gives you a third party. So you'll have these three parties. It'll be wallet, you'll have the seed phrase, and then you'll have like this login here. And so this helps make sure that no matter what, if you lose the wallet, you have these two and you can get in, you lose the seed phrase, you have these two that you can get in. And you can help designate other people to be a part of it, right? So you'll designate, hey, there's another person who can help get into this. This could be your spouse. This is Generally, what is recommended. And, you know, a lot of people choose not to move to a wallet and keep it on exchange simply because of the fear of this happening. So I think, you know, crypto is still so new that over the years, one of the biggest problems they're going to try to solve is estate planning. But also, how do we make this simple, right? We still have people who, like, don't even do online banking, right? They pay their bills regularly. They're definitely not buying crypto, moving it to a cold storage and keeping their seed phrase safe. But when you do this, some best practices are don't just get a safe at your home and put in the seed phrase and the wallet, right? Because if somebody gets into there, they have both. You never want those two together. So sometimes people have a safe at home that has the wallet. They'll have a safety deposit box that has the seed phrase. You typically don't want to store this on your computer, right? Like, put it in your notes app, put it on a drive with your document, with all your passwords is a terrible idea because a lot of people end up hacking your computer. And if they can find your seed phrase, there's a pretty good chance that they can end up hacking into your computer. And then one other practical point is this last year there was a ton of phishing scams, right? There was a really big scam where people would call you. They basically send an email and say, like, hey, you got locked out of X place. Call and we're going to help you log back in. They call and they say, okay, I'm going to send a number to your phone. That's going to be the login. And. And then they're gonna log in. They kind of hack your computer and they steal people's crypto. This has happened a ton in the last year. And so this is the issue why one, you never answer those. If anything seems fishy, don't do it.
- [13:01]
Tyrone
Our CEO texted me the other day asking me to go buy some gift cards.
- [13:06]
Thomas Coldman
Yeah, exactly, right? Until you're like, okay, that feels weird. That's never really gonna happen. And now there's ones where they're, like, intercepting calls, like hackers are intercepting calls. When people call, like a bank or whatever, and they'll basically get your information, and then they'll call the bank and pretend to be you. But your crypto is the easiest thing to be hacked. So you want to make sure you have a login, you have an email. That's very hard. That's not the Same one use anywhere else. And then you also have a way that you have like the authenticator, one of those apps, because you want as much protection as you can. And I'm just like everybody else. I hate logging in. Right. I hate all the steps that go into it. But I'll tell you, I know people who've lost 10 to $100,000 of crypto this year. You know, the nice thing is with banks, right, they you lose money from Chase, Chase is going to reimburse you. Crypto does not work like that. Like, nobody is giving you that money back. So you need to make sure you have all the safety protections in place.
- [14:02]
Tyrone
Yeah. And it's, you know, coming from practicing in estate planning, people really, it needs to be hammered into them, especially with this crypto stuff, to, to make sure that they're careful and they're doing this right. Because I can't tell you how many times someone passed away. The kids come in, can't find the will, can't find the trust, can't, you know, don't know the password for the email. Whatever the case is, people are just aren't organized. So I think it really needs to be hammered home, like, because in a lot of those scenarios, like you were saying, with bank accounts, you're going to figure it out. You know, there's, there's going to be some way that you're going to get access, but with some of these digital assets, you may literally not be able to get access ever. So really, really critical. It's hammered home that however careful you think you are, you need to be more careful.
- [15:00]
Thomas Coldman
Yeah, agreed. And I think while we're on this note, this isn't just digital assets. This is just like digital life as well. And so I think, you know, people forget about just logging in. Right. Like, I have a client right now that their, their dad just passed away and they've never digitized any part of their financial life. So their mom doesn't know any of the accounts that exist. They don't. She doesn't know passwords or how to get into it. So what's typically recommended is that, you know, you typically have like some storage place. There's a lot of these online providers where you can pay for, like, for me with my employees, they log into places, I log in with my stuff, but they have a password sharer, so you kind of want the same thing. There's ones where you can have Social Security numbers, you can have all of your accounts, credit cards, you can have passwords, everything. And all of it is locked inside of there behind typically like one master password and then some authentic cater app like. I highly recommend you do that. One, because if you don't, it's going to be a mess, it's going to take you a ton of time. And two, you might not have a way to be able to get in. And not even that. You might just have. You have no idea that some things exist. Right. You're talking about will, there's life insurance, there's all of the things that you need to be to have saved. Highly recommend that you have some system set up like this where everything is aggregated into one and that it is as protected as possible.
- [16:22]
Tyrone
Yeah, and I think also it's really important to understand that a lot of these online providers, whether it be social media, email, whatever the case is, they have their own terms of service and they might have their own system set up for granting access to someone if you become incapacitated or pass away. So that you know the power of attorney isn't going to help you. You need to actually go through that provider, know what their rules are on their platform. Let's say it's Facebook or whatever the case is, and actually go through the process of setting up access there. So, you know, everything's very fractured. Maybe eventually you'd be able to get access to it through a judge. But making sure that you understand that you have this whole digital life set up. We all do. And making sure that you know all the aspects of it and thinking, okay, what happens with this? What happens with this? What happens with this? And being able to lay out how do I deal with each individual thing, rather than just thinking I have one power of attorney document or whatever, it's going to cover everything if I become incapacitated, it's not necessarily the case.
- [17:29]
Thomas Coldman
Yeah, totally agree. Is there anything you feel like we haven't hit on yet with this topic?
- [17:36]
Tyrone
I don't think so. I just think it's a topic that is going to become more and more prevalent. And you know, when I review wills or trust is one of the first things I look for is do you have a digital assets provision? Do you grant access to your fiduciary to be able to gain access to digital assets and digital accounts? Because most trusts, most wills don't have it. So it's one of the biggest and easiest things to update an estate plan. And the way that the law is set up, a lot of statutes have adopted the Uniform Access to Digital Assets act where they've laid out these ways that fiduciaries can gain access, but your documents have to actually affirmatively grant access. And so really important that documents are updated to be with the times for so many different reasons, but this is just one of them, for access to digital assets, so that if you know, you become incapacitated or you pass away, you make sure that the person has access. Obviously with our wealth documents, we stay up to date, so that's something that's going to be included there. But 10 years ago, you're probably going to look at the document, you're not going to see anything.
- [18:55]
Thomas Coldman
Yeah, yeah, totally agree. And like, I think the ending point for advisors is like, you don't have to become an expert in this like I did my cda. Like, you don't need to do that. You don't need to learn about blockchain and every crypto and all these things work. But you do need to understand the basics of how taxes work, how the estate planning works. Because you know, at the end of the day, if you choose to ignore it, one, that's a risk and two, you're going to lose clients, right? Like there's different intricacies of every single client. There's different complexities that come up with them. You need to be willing to learn and to help. You can't just ignore it because you don't like the asset class, right? Like, I don't allocate any money to gold for my clients. That doesn't mean I can't have a conversation with them and understand it. So anyways, everybody, we appreciate you listening. Please don't forget to rate and subscribe and we'll see you back in a couple weeks.