Cryptocurrency is coming riding in Texas

Cryptocurrency is finally being accepted in the real estate planning world. It just got a big boost in Texas with the adoption of HB 4474, the virtual currency bill. You certainly can not ignore cryptocurrency with its $ 2 trillion valuation, but you will probably be cautious right now.

Here is an abbreviated explanation. Cryptocurrency is digital cash. It trades using a blockchain, which is the name of the basic technology. A blockchain is a distributed ledger that is verified by a peer-to-peer network.

There are many types of crypto, including Bitcoin, Litecoin, Ethereum, Ripple, Stellar and NEO. The owner keeps the crypto in a “wallet” that is kept either offline or online and is accessible via a blockchain address and a private key.

An owner can complete a transaction with his crypto through blockchain. Once a transaction has been added to the blockchain, it cannot be changed. Because blockchain is held through the network, there is no central participant.

To access the crypto contained in an owner’s wallet, you must have the blockchain address and the private key. An owner can have several blockchain addresses to protect privacy.

Which brings us to property planning. Crypto is a digital asset. You can not hold it in your hollow hand, bury it in the backyard or store it in your safe. Your trustee (proxy or executor) probably does not know that you own crypto unless you tell him so. Otherwise, your crypto investment may go to the grave with you.

Your trustee may not be able to legally access your crypto if you and he do not comply with the revised Uniform Trusted Access to Digital Assets Act. You must give your client written access to your digital assets. Even then, in order to access the assets, your managing institution must at least provide a written request, a copy of your will, trust or power of attorney and information linking the digital account to you.

If you have a trust-based property plan, you may encounter additional issues. Most trustees and traditional asset managers have not been willing to accept virtual currency in a trust. On the other hand, most commercial online exchange companies do not support trust accounts.

All of this could change in Texas with the new law allowing the 216 Texas state-owned banks to provide virtual currency storage services.

There is still the question of how to fund an account or trust with cryptocurrency. There is no universally accepted method, but suggestions range from sending the crypto to your trustee’s online wallet account to transferring your private key to a secure physical device and giving that device to the trustee. The new Texas law is likely to lead to a few new methods.

This does not mean that cryptocurrency is a good investment for a retiree. The value of crypto fluctuates wildly, making it a risky investment for many portfolios.

So far, the US Treasury and the Internal Revenue Service are treating virtual currency as property and applying existing laws to it. Executive Order 2014-21 is the latest guide, and it is directly inappropriate. It concerns e.g. Not explicitly the gift, property and generation leaping transfer tax consequences of a crypto transaction. The SEC, meanwhile, is still trying to determine if cryptocurrencies are unregistered securities.

So you have to dive into the crypto water? It’s up to you, but from a property planner’s perspective, the water still looks pretty dark.

Virginia Hammerle is president of the law firm Hammerle Finley. She is an accredited property planner and has been board certified in civil law for 25 years. She has also been recognized as a super lawyer for the past 10 years. She blogs regularly about senior issues and the law. Email legaltalktexas@hammerle.com to her monthly newsletter. This column is for general information only and does not constitute legal advice.

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