Crypto Estate Planning Guide

Why Crypto Estate:

 We’ve all heard the phrase “Mo’ money, mo’ problems.” This is especially true in the case of bitcoin early adopters.  Early Adopters who either bought or mined 1,000 bitcoin in the very early days of the currency, have costs basis that is close to zero.

In order to get those assets into the real economy, you have to declare long-term capital gains for all amounts held for more than a year or face the possibility of being locked in a cage.  For those who mined the currency, you may actually be subject to ordinary income and not capital gains.  

One way to get your bitcoin into the economy is through advanced charitable giving strategies. As Ben Schaub once said, “Most people don’t like to just give their money away. But everyone would like to become a philanthropist if it didn’t cost them very much.”

In actuality, anyone with means and resources automatically becomes a philanthropist upon their passing. The only question is whether you’re a philanthropist for the government via taxes (estate tax, capital gains, generation skipping, etc.) or a philanthropist for causes that are near and dear to you and your family.


Comparing this plan to someone who did nothing

Please note that this is strictly hypothetical. All assumptions are subject to change at any time based on prevailing tax laws and jurisdictions. It’s impossible to simulate every scenario but we believe this information to be accurate based on the assumptions outlined below. A decision to engage in advanced charitable giving strategies is a very important one that should only be made after all the pros and cons have been considered. Most of these decisions are irrevocable and cannot be undone.

Below, we use the example of a 55-year-old who funded one of these trusts with $15 million in highly appreciated bitcoin and who’s drawing a level $750,000 per year for 35 years. This individual is married but the lifetime income tax deduction is based only on his life for illustration purposes. We also did not use any life insurance in this example and in the FFIT or Family Foundation Income Trust example the family would still have an exemption of $22,400,000 left (as of 2018’s tax laws) to pass on to their heirs estate tax free.

Please note that the upfront deduction can only be carried forward for five years. As such it would make sense for this person to withdraw an extra $1,039,000 during the first five years so as to not waste any deductions. We included the extra $1,039,000 in each of the scenarios. This extra deduction was taken into account below. We also included a 1% fee to cover the administration and investment management costs within the FFIT.

The assumed bitcoin growth rate was 10% in the Do Nothing Scenario (DNS) and 9.0% in the Family Foundation Income Trust (FFIT) scenario to cover administration costs. Just imagine what this looks like if bitcoin’s growth rate is more than 10%!

Assumes the value of bitcoin = $15,000 and that Bob has 1000 bitcoins.

DNS

FFIT

After tax lifetime income assume liquidate BTC

$21,831,200

$22,789,950

Amount left upon passing1

$196,111,025

$127,911,372

Estate tax liability @ 40%2

$69,484,410

$0

Asset protection

No

Yes

Family foundation3

No

$127,911,372

Total upfront deductions4

$0

$4,789,950

Estate Tax Exemption Remaining

0

$22,400,000

Total transfer at death5

$104,226,615

$127,911,372

Total taxes paid to US government6

$74,942,400

$4,500,000

In the FFIT example, we managed to preserve an additional $23,684,757 of assets while paying $70,442,400 less in taxes! Depending on your goals, you may want to leave more or less money to your heirs than depicted above. Your heirs can also play a part in your foundation if desired. The above scenario is highly customizable to meet your exact needs.

Assumptions:

1 Assumes client draws income for 35 years and amount is net of capital gains and/or income taxes. Assumes capital gains rate of 20% and these calculation do not take into account state tax or Obamacare surcharge tax. In the FFIT scenario, the client withdrew the first $4.789 million tax-free for the first five years then netted $600,000 per year for 30 additional years. The client withdrew an extra $1,039,000 so as to not lose any tax deductions.*

*There are numerous other AGI considerations to take into account and you’ll want to talk with a CPA before engaging in any of these potential strategies.   

2 Assumes net worth left upon grantor’s death, 35 years later, after taking into account $750,000 per year gross withdrawals and 10% growth rate for the Do Nothing scenario and 9.5% growth rate using the FFIT scenario. Also assumes a 2018 estate tax exemption of $11,200,000 for a married couple.

3 This is simply the amount in line five, less the $22,400,000 estate tax exemption and multiplied by 40% in the Do Nothing scenario. For the FFIT scenario, all amounts in line five pass outside of one’s estate and therefore are not subject to the estate tax.  The estate tax exemption has been highly volatile over the years and we would expect this exemption amount to be closer to $5,000,000 once the Democrats regain control of government.

4. This is the amount passed onto your family foundation.

5 This refers to the upfront tax deduction for establishing the trust. Someone with substantial means could stagger donations to completely avoid paying taxes, but such a scenario is difficult to illustrate.

6. This amount doesn’t include any estate or death tax, which should also be considered for your unique situation. This takes into account income tax, capital gains taxes and federal estate taxes. In this plan, the FFIT transfers to a foundation, thus passing outside the estate. The FFIT assumes tax-free life insurance proceeds using an irrevocable life insurance trust (ILIT). Life insurance premiums would be paid using post-tax money and the premium is based on several factors including age, sex, health and the level of coverage required. The premium was not factored into this equation.

 

7. The Do Nothing scenario takes into account the $11.2m estate tax deduction and is the net estate after paying a 40% federal estate tax. The transfer includes an amount to children/heirs, including life insurance and the amount bequeathed to the family foundation. In the Do Nothing scenario, they would have paid $150,000 in capital gains for 35 years straight, then a 40% tax on their gross estate ($750,000 * 0.2). In the FFIT example, they would’ve paid $277,500 in income taxes for 30 years ($750,000 * 0.37).


Alternate “Shoot the moon” Scenario:

What if Bitcoin / Crypto grew at 20% over 35 years? All previous assumptions

DNS

FFIT

After tax lifetime income assume liquidate BTC

$21,831,200

$22,789,950

Amount left upon passing1

$6,281,361,504

$4,594,581,823

Estate tax liability @ 40%2

$2,503,584,601

$0

Asset protection

No

Yes

Family foundation3

No

$

Total upfront deductions4

$0

$4,789,950

Estate Tax Exemption remaining

$0

$22,400,00

Total transfer at death5

$3,755,376,903

$4,594,581,823

Total taxes paid to US government6

$3,760,834,893

$4,500,000

Taxes Saved $3,756,334,893!!!!    Additional transfer: $828,288,940

In Conclusion

When you look back on your life, there’s no better feeling than knowing you created something bigger than yourself. This is ultimately one of the most important decisions you can make in your life because it’s a crucial part of how you’ll be remembered and one of the best ways to have a positive impact on humanity long after you’re gone. We’re honored that you’ve considered our services as you prepare to make this decision. Please know that we never forget that we’re managing other people’s fortunes and we never forget the blood, sweat and tears it took to accumulate your wealth.


Instead of being held hostage to state-sponsored theft, we at Crypto Self Direct can show you how to:

  • 1. Dramatically cut your tax liability.
  • 2. Create a long-lasting legacy to benefit humanity.
  • 3. Preserve millions – if not tens or even hundreds of millions – of your assets for causes that matter most and not for government bureaucracy.

If properly set up, everyone except the IRS is better off by you “giving away” your money… including your heirs.

What many people do not realize is that you can set up charitable trusts that pays the “grantor” (i.e. YOU) for the rest of your life. Only upon your passing do your funds get passed to a charity/foundation. This can also be established to pay for two lives (i.e. a husband and wife).

Not only can you sell/diversify your assets inside the trust and AVOID taxation within the trust, but also you can get an upfront tax deduction for doing so. This deduction is based on the percent of funds you’re withdrawing per year, as well as your age. The older you are and the less you withdraw, the larger your tax deduction will be.

For example, if a 55-year-old funded one of these trusts with $15 million in highly appreciated bitcoin and withdrew 5% per year, he would enjoy a $4,789,950 upfront tax deduction. This could then offset the $750,000 per year they’d receive as income from the trust.

Ideally, he would then take some of the $750k to buy life insurance inside of a special trust designed for life insurance. This enables his life insurance proceeds to pass outside his estate and not be counted as part of ones gross estate. The layman incorrectly assumes that life insurance proceeds are tax free. The layman is correct that the proceeds are income tax free, but the proceeds are still subject to the gross estate tax, unless it’s in an irrevocable life insurance trust (or ILIT).

By taking advantage of advanced estate planning techniques, we can effectively create a situation where none of your assets will be subject to the estate tax and your family will receive a tax-free death benefit, all while you get to use the upfront tax deductions for establishing the trust.

For charitable giving, it’s best to consider highly appreciated assets and businesses with low costs basis.  

In the FFIT example, we managed to preserve an additional $23,684,757 of assets while paying $70,442,400 less in taxes! Depending on your goals, you may want to leave more or less money to your heirs than depicted above. Your heirs can also play a part in your foundation if desired. The above scenario is highly customizable to meet your exact needs.

Assumptions:

1 Assumes client draws income for 35 years and amount is net of capital gains and/or income taxes. Assumes capital gains rate of 20% and these calculation do not take into account state tax or Obamacare surcharge tax. In the FFIT scenario, the client withdrew the first $4.789 million tax-free for the first five years then netted $600,000 per year for 30 additional years. The client withdrew an extra $1,039,000 so as to not lose any tax deductions.*

*There are numerous other AGI considerations to take into account and you’ll want to talk with a CPA before engaging in any of these potential strategies.   

2 Assumes net worth left upon grantor’s death, 35 years later, after taking into account $750,000 per year gross withdrawals and 10% growth rate for the Do Nothing scenario and 9.5% growth rate using the FFIT scenario. Also assumes a 2018 estate tax exemption of $11,200,000 for a married couple.

3 This is simply the amount in line five, less the $22,400,000 estate tax exemption and multiplied by 40% in the Do Nothing scenario. For the FFIT scenario, all amounts in line five pass outside of one’s estate and therefore are not subject to the estate tax.  The estate tax exemption has been highly volatile over the years and we would expect this exemption amount to be closer to $5,000,000 once the Democrats regain control of government.

4. This is the amount passed onto your family foundation.

5 This refers to the upfront tax deduction for establishing the trust. Someone with substantial means could stagger donations to completely avoid paying taxes, but such a scenario is difficult to illustrate.

6. This amount doesn’t include any estate or death tax, which should also be considered for your unique situation. This takes into account income tax, capital gains taxes and federal estate taxes. In this plan, the FFIT transfers to a foundation, thus passing outside the estate. The FFIT assumes tax-free life insurance proceeds using an irrevocable life insurance trust (ILIT). Life insurance premiums would be paid using post-tax money and the premium is based on several factors including age, sex, health and the level of coverage required. The premium was not factored into this equation.


In order to maximize your tax deductions and to avoid as many taxes as possible, careful planning and considerations must be made. There is no one-size-fits-all approach to this type of planning and your circumstances may vary greatly from the above scenarios depending on many factors including age, legacy goals, lifestyle goals, charitable goals, growth rates, percentage you’d like to withdraw, marriage status, state tax laws, the health of grantor and spouse, liquidity concerns and more.

If we want to beat the system, we must use the system against the system. In the Do Nothing scenario, by not having a plan and not executing upon it, the US government’s plan  involves you paying them 40% of your gross estate. Democratic administrations have repeatedly tried to raise this amount to over 50% and for many years the rate was as high as 77%.

By placing your funds in a family foundation, you’re able to create a permanent legacy to help benefit mankind. Many of the major foundations of the world are using their funds as a weapon against humanity and the only way to combat their reign of terror is to have our own freedom and decentralized foundations to help to advance the species. We can’t claim to be a free market if we don’t use the free market when it comes to estate planning. 

 

I won’t name names for fear of reprisal, but just think of the influence that some of America’s early robber barons still have on your future and your children’s future. Some of these foundations are committed to eugenics. Others have called for the end to the nuclear family, and some are even responsible for the current state of the US healthcare and education systems.

In order to combat this, we need to have our own systems in place to preserve our own legacies and to show why government isn’t needed. Everyone has issues and causes that are important to them, and if the crypto rich take advantage of their newfound wealth, they’ll truly have the potential to alter the course of humanity.

The crypto revolution is one of the greatest wealth transfer opportunities the world has ever seen. It’s time to combat these psychopaths with a dose of their own medicine.

We hope we’ve piqued your interest and demonstrated why at the very least you owe it to yourself to explore these opportunities further.

Thank you for reading and please email info@thelibertyadvisor.com if you would like to know more.

[1] Permanent so long as the fund is solvent.


DISCLOSURES:

The client or prospect acknowledges that there are many inherent risks to owning cryptocurrency.  At this stage, cryptocurrencies – also referred to as blockchain, cryptos, and crypto-assets – are incredibly volatile, and are at best an early stage speculative vehicle. We do not recommend putting more than 30% of your assets into alternative asset classes and no more than 10% in cryptocurrencies. We also realize that certain individuals will have philosophical beliefs that do not make them “traditional” investors. These individuals must acknowledge the many risks in having concentrated positions in cryptos and the dangers of not being diversified.

The average retail investor must also realize the risks inherent in cryptos and bitcoin. There’s the political risk that cryptos could be banned by the government. There’s the potential that cryptos could be added to the list of prohibited IRA assets. Since there’s no precedent for such a decision, we don’t know how the government would treat such assets in the case of such an event. We’d hope that investors would have a chance to sell those assets and to reinvest the proceeds into allowed vehicles, but there’s no telling what “remedies” the government might

have in mind.

Other risks include, but are not limited to, extreme volatility, short track records, new alt coins

displacing current cryptos, an ever-evolving marketplace, new laws and legislation, hacking, quantum computing, the safety of exchanges, the loss of private key(s), the lack of a central authority for re-dos, currency risk, geo-political risk, etc.

Investors considering charitable trusts and foundations must weigh up all of the pros and cons. The most serious consideration is that such action is irrevocable and cannot be undone. Tax laws and estate laws are subject to change at any time which may adversely affect your projected benefits.

We are not lawyers or accountants and any information about taxes or estate law is just that – information. Please consult with a lawyer or tax professional before making a decision.

In some instances, we may have relationships with non-profits, solicitors or affiliates. Any such relationship and/or compensation shall be revealed prior to entering into an agreement.

Please also realize that we believe the above information to be accurate but with an ever-shifting tax landscape, all scenarios were strictly hypothetical. Past performance is no indication of future returns.

Lastly, please know that we are fiduciaries and that your future is our focus.

Best Regards,

Tim Picciott CFP® CRPC®

*All views expressed above are that of the author and are subject to change at any time.