Five Things Bitcoin Users Should Remember

The Internal Revenue Service (IRS) issued notice 2014-21 which stipulates that bitcoins will be treated as property instead of currency for tax purposes. There a five estate planning traps that people should watch out for when handling bitcoins:

1. Keep track of step-up and step-down basis.  Bitcoin owners will want their heirs to benefit from the bitcoins stepped-up basis.  At the same time they will want to watch out for any step-down basis caused by the depreciation of the property. 
2. Make sure executor or trustee has knowledge of bitcoin’s existence. When making an estate plan it is important to make sure the executor of your estate has knowledge of the existence of your bitcoin collection.
3. Make sure executor or trustee knows about private key. Even if your executor or trustee knows about the existence of your bitcoin collection, they will also need to have your private key or login information so that they can have access to the bitcoins.
4. Agent will need power of attorney to access bitcoins. It is important to remember to give your agent the power of attorney needed to access the bitcoins. 
5. Beware of Prudent Investor Act. A lot of states have a prudent investor act that requires Trustees to diversify investment portfolios.  It is important to be aware of State law in this area and any sort of exceptions that might be in place.

See Jeff Vandrew Jr., 5 Things Bitcoin Owners Must Do When Estate Planning, CoinDesk, July 28, 2015.