- Special Counsel
According to the Pew Research Center, nearly nine-in-ten Americans have heard of cryptocurrency, while 16% have personally invested in, traded, or otherwise used cryptocurrency. Cryptocurrency carries strong tax consequences and is incredibly volatile. However, as more people dip their toe in this new method of currency, it is important to determine how this impacts planning for the future – especially in regards to estate planning. As to both the individual passing along the currency and the executor who has a fiduciary duty to preserve estate property, cryptocurrency creates a new and unique challenge of satisfying final wishes.
On March 9, 2022, President Biden issued an Executive Order to conduct research regarding government-backed cryptocurrency. This is the first step in what is likely to become a United States Central Bank Digital Currency or CBDC. The goal of this Executive Order and study is to protect consumers, investors, and businesses in the United States while investing in digital assets such as cryptocurrency. This Executive Order is in response to a White Paper from the Federal Reserve from January 2022 which found that a CBDC could benefit consumers by making payments cheaper and easier. However, the White Paper noted that while there are strong benefits, a CBDC could potentially create instability within the United States financial system. The Executive Order seeks to research possible benefits and potential regulations to make a CBDC feasible.
Within 180 days, the Secretary of Treasury, in consultation with the Secretary of State; Attorney General; Secretary of Commerce; Secretary of Homeland Security; Director of the Office of Management and Budget; Director of National Intelligence; and the heads of other relevant agencies, shall submit a report to President Biden detailing the future of a CBDC. This report will not only focus upon the creation of a United States CBDC, but also the tax ramifications and legislative changes that would be necessary.
As this area of cryptocurrency is quickly changing, and as a United States Central Bank Digital Currency is likely on the horizon, it is important to note the legal ramifications of investing in this type of currency and the way that this will impact financial planning and future investing.
As you seek to navigate this new and quickly changing legal terrain, we at Bowles Rice are happy to help. Seek out the counsel of our experienced Tax Team who stands ready to help you with the tax ramifications of these changes as you plan and provide for your loved ones.