Why It’s Important to Include Your Digital Assets in Your Estate Plan
By Julian Schubach
As seen in NF News on December 8, 2021
Few things are guaranteed in life. However, one thing that’s guaranteed is we will one day die, we just don’t know when. Estate planning is an important consideration if you want to ensure your assets are passed to your loved ones in the most efficient manner. In the past, it was easy to incorporate traditional assets in your estate plan; stocks, bonds, cash, real estate, and physical goods were easily accounted for and accessed by heirs. Alternative investments, on the other hand are trickier. You may have extensive knowledge about your crypto holdings, how to access them and the market value of those assets, but do your heirs have that same knowledge?
What Does an Estate Plan Include?
There are three main components of a simple estate plan: health care proxy (living will), durable power of attorney, and last will and testament.
1. Health Care Proxy (Living Will)
A Health Care Proxy, or Living Will, is a legal document assigning the health care decisions of an individual to another in the event the individual is incapacitated. This document allows you to make your medical directives known. Do you want to be on life support? Do you want chest compressions? A proxy directive can alleviate stress and anxiety among family members about how a situation should be dealt with. By making your preferences known ahead of time in this legal document, you’ll give your family members the comfort that the right course of action is being followed in a tragic medical event that leaves the individual in an unconscious state.
2. Durable Power of Attorney
A Power of Attorney is most frequently used in the event of an individual’s temporary or permanent illness or disability, or when the person is unable to be present to sign necessary documents. If you were to have an accident and were unable to sign documents, or make legal decisions, your power of attorney can sign documents and make those decisions for you.
3. Last Will and Testament
A Last Will and Testament is a legal document that communicates a person’s final wishes pertaining to assets and dependents. Your Last Will and Testament outlines what to do with possessions — whether you’ll leave them to another person, a group, or donate them to charity — and what happens to other things that you’re responsible for, such as custody of dependents and management of accounts and financial interests.
Including a Trust in Your Estate Plan
Some estate plans also include various trusts to accomplish goals, such as philanthropic giving or the ability to avoid probate. In 2022, the Federal Estate Tax Exemption will be $12.06 million per person. Meaning if you die, you may leave up to $12.06 million to your heirs without them incurring any federal taxes. But don’t be fooled by this number. Each state has their own estate tax threshold, which in many cases is much lower than the federal exemption – meaning even if you fall under the federal limit, your heirs may still owe state taxes. If your estate is worth more than $12.06 million and you haven’t moved those assets into irrevocable trusts, your heirs will owe both state and federal taxes upon receipt of your assets. With ever-increasing floors and valuations of NFTs, it’s important to understand how these assets may affect the value of your estate and how heirs will cover the tax bill if they inherit somewhat illiquid assets like NFTs.
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