Is Your Cryptocurrency Safe? How to Shield Digital Assets

A digital shield against digitized background.

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As cryptocurrencies like bitcoin surge to unprecedented values — having crossed the $100,000 mark earlier this year — both seasoned investors and newcomers are pouring billions into this thriving asset class.

The SEC’s approval of spot bitcoin ETFs and the creation of the Strategic Bitcoin Reserve (SBR) by President Donald Trump, has only accelerated this trend, inviting greater mainstream adoption and wealth accumulation.

Yet, despite these meteoric gains, many holders of cryptocurrency have given little thought to the estate and asset protection opportunities available to safeguard their digital investments.

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If you own, plan to own or know someone who holds cryptocurrencies, now is the time to consider strategic legal planning.

By implementing the right structures and tools, you can shield these valuable assets from estate taxes, potential creditors and unforeseen lawsuits.

Here are five critical strategies to consider:

1. Structure your holdings through LLCs and asset protection trusts

One effective way to protect your cryptocurrency is by placing it in a limited liability company, or LLC, and then into a properly structured trust — whether a foreign or domestic asset protection trust.

This arrangement helps ensure that your digital assets remain off-limits to potential creditors, providing a powerful safeguard in the event of litigation.

2. Reduce the incentive for litigation

With millions of lawsuits filed every year, wealth often attracts unwanted legal battles. Taking proactive steps to diminish the financial incentive for someone to target your holdings can deter frivolous claims.

Properly executed asset protection strategies can minimize the visibility of your cryptocurrency, making it more challenging for creditors to pursue your assets.

3. Craft an estate plan tailored to cryptocurrency

Many estate planning attorneys are not yet equipped to handle digital assets. Working with a law firm experienced in cryptocurrency estate planning ensures that your wills, trusts and other documents account for the unique challenges and opportunities presented by digital currencies.

Proper structuring can prevent excessive estate taxes, allow for seamless transfers to heirs and preserve your wealth for future generations.

4. Maintain comprehensive records

In the cryptocurrency world, meticulous record-keeping is invaluable. Detailed transaction histories simplify tax reporting and strengthen your position if the legitimacy of your ownership is ever questioned.

Numerous software solutions can streamline this process. For example, Node40 can help you keep precise records of all your cryptocurrency purchases, sales and transfers.

5. Employ secure storage solutions

“Not your keys — not your bitcoin” is a common refrain among longtime investors. To truly protect your digital assets, prioritize secure storage methods.

Hardware wallets or reputable online wallets can help safeguard your coins against hackers, theft and other threats.

Consider integrating these secure storage solutions into your broader estate and asset protection plan to ensure a smooth transition of your holdings to heirs.

Achieve long-term security for your digital wealth

As the cryptocurrency landscape evolves, so do the legal frameworks and strategies needed to protect these assets.

By taking the steps outlined above and working closely with an experienced legal team, you can safeguard your investments against estate taxes, creditors and potential lawsuits — ensuring your holdings remain intact throughout your lifetime and pass on as a lasting legacy.

The information in this article is for informational purposes only and does not constitute legal or tax advice.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jeffrey M. Verdon, Esq. is the lead asset protection and tax partner at the national full-service law firm of Falcon Rappaport & Berkman. With more than 30 years of experience in designing and implementing integrated estate planning and asset protection structures, Mr. Verdon serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives. Over the past four years, he has contributed 25 articles to the Kiplinger Building Wealth online platform.