How Estate and Financial Planners Can Address Digital Assets

December 2, 2019  |  By

Two of the professions most impacted by the new asset class of digital assets are estate attorneys and financial planners. These professionals need to be on the forefront of addressing this technology and understanding its nuances (primer here) and what makes it different from standard assets like fiat currency, stocks, and bonds. Specifically, they need to be aware of how the asset is held, transferred, and treated by the IRS.

Below are some tips for estate attorneys and financial planners to get the conversation started with clients and add value.


Does your client have exposure to digital assets? This is an asset and should be recorded on your client’s balance sheet.

Keep Records

Maintain records of the assets and their cost basis. Unless an income situation exists (like payment for services or through mining), the IRS treats these assets as property and expects taxpayers to include any gains or losses on their tax reporting. Current exchanges, even the most widely used ones, provide little tax reporting tools. This role is left to the owner, or her professionals. Recognized gains should be reported and losses can be used to offset other income.

Include in Asset Allocation

Digital assets are extremely volatile. This is an element of risk in your client’s portfolio and it is worth determining if it should impact other portfolio holdings. That being said, if your client can endure bitcoin volatility, perhaps she really does have the risk tolerance she claims on her questionnaire (!).

Include in Financial Plan

What is the plan for this asset? Does your client have a buy-and-hold strategy? Or, does she trade regularly and often? If the position is a long term holding, it is likely that she may have significant gains or losses that should be addressed and harvested if appropriate.

Address Transferability and Ultimate Plan

One of the beauties of digital assets is that it can be held outright without a custodian, bank, or exchange. Sometimes, there can be no-third party involved. This means that if your client holds her digital assets in a particular method and she is no longer available to access the digital assets, there may be no recourse to retrieve the assets. Having a plan in place for this situation is imperative. By simply starting this conversation, trusted advisors can provide significant value to their clients.

Seek Guidance

This new asset class is extremely complicated and can have lasting and permanent consequences. Always make sure to hire an attorney and seek a specialized attorney when dealing with digital assets in transactions.

As a reminder, one (even an attorney or planner) should never ask for or collect a private key or seed phrase from a client.

Posted in: Blockchain

About the Author(s)

Lacey Shrum

Lacey is an attorney at Vela Wood where she serves businesses that use blockchain technology and digital assets. She serves as a subject matter expert and expert witness to attorneys and advisors as they encounter digital assets in their traditional legal practice.

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