If you are trading and watching the cryptocurrency market, Bitcoin has been moving up and down the market reaching highs at close to $10,000 per BTC over the last couple of months. For the record, any form of cryptocurrency is a digital asset, an asset that forms part of your estate. Cryptocurrency specifically has been known to vanish, never to be recovered should passwords go missing. If there aren’t any clear instructions on what to do, or how to do it, your capital gains for such assets will be of no value to your heirs. You might as well consider it buried with you upon your death!
Why do we discuss this now? With the current Coronavirus pandemic, many of us live with accelerated fear. A fear of the unknown, and with the awareness of how fragile life can be. Some have both fallen ill and faced the death of loved ones. They most likely never imagined this scenario, when they toasted with their loved ones on January 1st this year. Living in quarantine, and the fear of possibly getting sick and dying may have crossed our minds over the last couple of months. The truth is that pandemic or not, death is something we will all face some day – it is simply a part of living. The real question is, how do you plan for it constructively? How do you set everything up so that you leave your legacy and wealth intact for your family? How do you navigate the legal aspect to keep your estate from going through California Probate courts? The answer to all this is to create an estate plan which should include a living trust.
When creating a comprehensive estate plan, you may likely think of including account statements, insurance policies, and other traditional documents to determine what will need to be considered in your will, trusts, or other planning instruments. However, protecting your assets is not limited to preservation of investments and financial accounts. Tangible assets such as art, cars, antiques, and other collectibles should be considered. That is in addition to digital assets like valuable data in apps, email, and in this era, cryptocurrency.
First, identify the need to protect your wealth upon your death. Psychologically, many find it hard to do so, as thinking about death can conjure up negative feelings and may be taboo in some cultures. Second, once you decide on getting an estate plan done, educate yourself on what it entails. We have plenty of articles on our website to guide you through what is included in an estate plan, issues around your advance health care directive, probate, and much more. Lastly, gather your questions and come in for an initial complimentary consultation with one of our attorneys. We provide consultations in both English and Spanish. In the case that you have elderly parents who need bilingual services, you can be right there with them, and we will happily accommodate.
There are many law firms who can provide you with an estate plan, including the likes of Legal Zoom. We pride ourselves on making sure every angle of your estate is addressed. We take a meticulous approach to prepare estate plans and offer a personalized method of handling your affairs. At Velasco Law Group, we can help you identify both tangible and digital assets that, though they might not be at the forefront of your thoughts, they may be extremely important and valuable to you and your beneficiaries. With both tangible and digital assets, the first step is to create a list of assets and then determine the best way to protect them. We can create an estate plan that works for you and your beneficiaries, eliminating the headache and hassle of tracking down assets that may otherwise go unaccounted. If you do add assets after the estate plan is created, we can revise the documents accordingly.
For those looking to pass on generational wealth, now is a great time to consider the Grantor Retained Annuity Trust (GRAT). GRATs are a way to pass assets to the next generation with minimal gift or estate tax consequences. A grantor transfers assets into an irrevocable trust that distributes to your beneficiaries after a fixed period of time (2-10 years). To maximize the benefits, a GRAT is typically funded with assets that have significant growth potential.
There are two key factors now that make GRAT planning even more effective: asset values are now depressed due to COVID-19 and the IRS hurdle rate is at a historic low. A GRAT strategy works off of the IRS section 7520 rate, which is released monthly and used to calculate the amount of the annuity payments to the grantor. Currently the May 2020 rate is 0.8%. From a historical perspective, it is incredibly low. A year ago, in May of 2019, the rate was 3.2%. The lower the rate, the lower the total payments required to fully transfer the GRAT assets to the beneficiaries. The historically low rates make now a once in a lifetime opportunity for those with significant taxable estates to take action with smart planning using a GRAT to pass assets to beneficiaries.
GRATs are advanced planning trust strategies that are not for everyone. They should only be considered after a thorough understanding of the costs and benefits from experienced and qualified legal counsel The team at Velasco Law Group would be happy to work through a cost-benefit analysis with you and your family in person or virtually.
To learn more about how to protect your assets all round, make an appointment with us HERE