According to CNBC, 1 out of 10 people invested in cryptocurrency for the ease of trading and acquiring crypto through an app.
As a crypto investor with digital cash, it may seem easy to fall victim to theft, scams, or accidental loss of your cryptocurrency private key.
Yes, theft has increased since the start of the pandemic in 2020. Cryptocurrency scammers have stolen $14 billion in crypto in 2021.
It’s not just the theft and scammers you have to worry about as a crypto investor. According to the Go Banking Rates, 20% of all Bitcoins are lost because of lost private keys.
What about lawsuits, bankruptcies, and a plan for your assets after death? Although legal judgments and bankruptcy disclosures are still early in case law, crypto is a fair game for collecting on a debt.
The IRS considers cryptocurrency as virtual currency. In 2014, the virtual currency was determined to be property.
As a crypto investor, protecting taxable digital assets is crucial. The crypto in your portfolio is as important as real estate or stock.
The question remains, why do you need cryptocurrency asset protection trusts?
Let’s dive in.
What is Cryptocurrency?
If you are considering becoming a crypto investor, you’re not alone. Digital currency is growing in popularity and becoming more mainstream.
Cryptocurrency is not a physical currency, so you can’t actually hold it in your hand. There are several types of cryptocurrency, such as Ethereum and Tether.
Bitcoin is the most popular crypto investment. Bitcoins are lines of computer code that are digitally signed each time they are traded.
Bitcoin was created in 2009 by an unknown person or group of people under the name Satoshi Nakamoto.
Be aware that cryptocurrency is a decentralized asset. This digital asset is not insured by the Federal Deposit Insurance Corporation. This virtual currency is not connected to any bank or government.
What is Cryptocurrency Asset Protection?
Cryptocurrency asset protection is a financial plan. It protects your digital assets from legal judgments, seizures, and other losses.
As a crypto investor, there is a false sense of asset protection. The cryptography and the blockchain help keep all cryptocurrencies anonymous. But this is not enough protection for your digital asset.
When you google, “Cryptocurrency Asset Protection”, over 11 million results appear. You get the basic idea that protecting your crypto portfolio is ideal if you want to maintain your anonymity.
However, Google, or businesses that do not have a qualified cryptocurrency lawyer on staff, may not be able to answer all your questions.
It doesn’t matter if you started investing in Bitcoin in 2010 or became one of the 55% of new Bitcoin investors from 2021, a cryptocurrency asset protection trust is for you.
It is not a good idea to procrastinate. Taking a non-action approach will put your digital assets at risk without a proper asset protection plan.
For more information on asset protection, read our article, “Asset Protection: The Do’s and Don’ts.
Benefits of Cryptocurrency Asset Protection Trusts
The asset protection trust will hold your cryptocurrency, real estate, stock, and other digital assets. The third party you choose as trustee will manage your trust as you direct.
An asset protection attorney with our firm will assist you in choosing the right trust for your cryptocurrency and other assets. The benefits of a cryptocurrency asset protection trust also include:
- Protection from judgments and seizures
- Minimize estate and gift tax
- Heirs avoid probate court
Below, we’ll discuss each of these sections in greater detail.
As a crypto investor, you want to maintain your anonymity. Your name or business will be private.
Probate filings are public records. Not having your family name in the public eye will avoid schemers and business opportunists. You and your heirs’ names will remain private with a cryptocurrency asset protection trust.
Protection from Judgments and Seizures
The Cryptocurrency Asset Protection Trust protects your digital assets from judgment and legal settlements. This trust is an irrevocable legal entity that is not in your name.
Minimize Estate and Gift Tax
The state of Georgia does not have an estate or gift tax. A plan to minimize federal estate and gift tax is a great benefit for crypto investors.
Heirs Avoid Probate
It was reported that 59% of Generation Z crypto investors do not have an estate plan or asset protection trust. 35% of Millennials also reported no plan in place for their cryptocurrency asset.
For the protection of your cryptocurrency assets, it’s a good idea to have a strategy in place. Your heirs will have easy access to your crypto assets, and avoid a long probate process.
If you are curious about the probate process, read our article, “How Long Does Probate Take in Georgia?”
Estate Planning vs. Asset Protection Trusts
Estate planning is preparing for the distribution of your digital assets and property after your passing.
The thought of leaving loved ones is undesirable and explains why only 46% of Americans have prepared a will. These statistics have slightly moved up and down since the first Gallup report in 1990.
A will and power of attorney will not protect your anonymity from a probate court proceeding if you become incapacitated.
Your crypto assets will be at risk if you create an estate plan without creating an asset protection trust.
A will or power of attorney will not protect your crypto assets from lawsuits, divorce settlements, and other unforeseen issues.
Unlike other assets such as real estate and retirement accounts, a cryptocurrency asset must be diligently announced to its heirs.
Notifying loved ones about your digital assets must be part of your estate plan. However, a cryptocurrency asset protection trust will give the heirs the exact direction on what to do with the digital asset.
A cryptocurrency asset protection trust will immediately protect your digital assets and minimize federal estate and gift tax.
Cryptocurrency Asset Protection: Why Do You Need It?
When you make the decision to find a professional cryptocurrency lawyer to assist you with protecting your digital asset, this is one less thing to worry about.
A cryptocurrency asset protection trust immediately protects your digital asset once created – as opposed to a will or other estate instruments that require incapacitation or death to start protecting your investment.
Placing your cryptocurrency in an asset protection trust will provide a financial plan with a list of your private keys to access your cryptocurrencies.
If your heirs don’t have this asset road map, your crypto investment will be gone forever. Having a plan to where your wallet and private keys are located is necessary for you and your heirs.
It’s likely that your heirs don’t know much about cryptocurrency. This will allow you to leave behind a guide advising on the difference between cold and hot wallets.
You can make it clear that the cold wallets are not connected to the internet. Your cold wallets may be stored on a USB drive, printed paper wallet, and note where to locate them.
A written asset protection trust that explains how hot wallets are connected to the Internet, along with account information and your transaction plan will help your heirs navigate the crypto process.
Asset Protection Trust Options
A popular option that many crypto investors create with an asset protection attorney is an offshore trust.
Placing your cryptocurrency and other digital assets in an offshore trust is legal if done correctly and under the United States Department of Justice Offshore Compliance Initiative guidelines.
Offshore trusts are a viable instrument to consider. However, it is not recommended to begin this process without a seasoned cryptocurrency asset protection attorney.
Offshore trusts are also referred to as international trusts and foreign trusts. The offshore trust trustees and managers are located in the country the trust is created.
Some popular locations for offshore trusts, like the Cayman Islands and Cook Island, have made themselves havens for foreign asset protection.
The State of Georgia currently does not have a statute for Domestic Asset Protection Trusts. However, the asset protection attorneys at Smith Barid, LLC are experts at creating several strategies to protect your crypto assets.
Schedule Your Consultation Today
Why you need cryptocurrency asset protection trusts to protect your digital assets is no longer a mystery.
Protecting your digital asset should be part of your immediate investment plan, whether you are a seasoned crypto investor or just getting started.
It is our goal to walk you through this process every step of the way. You will be provided with all your options during your initial consultation. We offer virtual and in-person consultations.