Digital assets, including cryptocurrencies, have become increasingly popular in recent years. As a result, it is crucial for advisors and fiduciaries to have a deep understanding of these assets in order to assist clients in protecting and administering them. When it comes to trust planning for digital assets, Wyoming has emerged as a leading jurisdiction due to its favorable tax, trust, and privacy laws. In this article, we will explore why Wyoming is an attractive choice for managing digital asset portfolios and how its comprehensive legal framework supports estate planning with cryptocurrencies.
Tax Friendly Wyoming
One of the key reasons why individuals choose Wyoming for trust planning with digital assets is its tax-friendly environment. According to Kiplinger, Wyoming has one of the lowest overall tax burdens in the United States. The state does not impose any state income or capital gains tax, nor does it have a gift or estate tax. This makes Wyoming an attractive jurisdiction for generational wealth planning, as individuals can maximize their wealth without the burden of excessive taxes. Importantly, these tax benefits are not limited to Wyoming residents but can also be utilized by non-residents who transfer assets to a Wyoming non-grantor trust.
Innovative Trust Laws and Structures
Wyoming offers a variety of innovative trust laws and structures that are specifically designed to address the unique challenges and opportunities presented by digital assets.
Decanting
Decanting is a powerful tool that allows trustees to modify the terms of a trust without going to court. Wyoming is one of the few states that explicitly grants trustees the authority to decant, regardless of whether the trust instrument or common law provides for it. This means that trustees can distribute all or a portion of trust income or principal to a future trust for the benefit of the trust beneficiaries, even if the distributions are discretionary or mandatory.
Private Family Trust Companies
Private family trust companies are becoming increasingly popular, especially for families with substantial holdings in concentrated asset classes like digital assets. Wyoming is a favored jurisdiction for establishing private family trust companies due to its favorable tax and trust laws. The state offers both regulated and unregulated options, providing flexibility in capitalization requirements and allowing families to gradually introduce the younger generation to wealth management strategies.
Privacy and Creditor Protection
Privacy and asset protection are top priorities for many individuals when it comes to estate planning. Wyoming boasts some of the strongest privacy and creditor protection laws in the country.
Silent Trusts
Wyoming is one of the few states that permit the establishment of "silent trusts." These trusts allow the trustee and other fiduciaries to keep the existence of the trust confidential until a specific point in time. This can be particularly useful when planning for the distribution of digital assets to beneficiaries, ensuring that the assets are protected until the beneficiary attains a certain age or when the trust funds accumulate to a specified value.
Asset Protection Trusts
Wyoming also allows for the creation of self-settled asset protection trusts. These trusts provide the settlor with the ability to be named as a beneficiary while still maintaining control over the trust's investments. After a certain time period has elapsed, the assets in the trust are generally protected from attachment by the beneficiary's creditors. This can be especially valuable when holding digital assets, as it offers an additional layer of protection against potential claims.
Comprehensive Legal Framework for Digital Assets
Wyoming has been at the forefront of digital asset legislation, passing 24 laws related to digital assets since 2019. It was the first state to enact blockchain-enabling legislation and to recognize digital assets as intangible property under Article 9 of the Uniform Commercial Code.
By passing these laws, Wyoming has established a comprehensive legal framework for digital assets, treating them as intangible property subject to the same property rights and protections as other forms of intangible property. This legal framework, combined with the existence of the Chancery Court, a specialized court focusing on business and trust cases, creates an advantageous environment for blockchain and cryptocurrency companies.
Two Ocean Trust and COIN Trust
In Wyoming, there are commercial companies leading the way in managing digital assets. For example, Two Ocean Trust, a Wyoming-chartered trust company, has received recognition from the Wyoming Division of Banking as a qualified custodian of cryptocurrency. They have partnered with Anchorage Digital Bank to create the COIN Trust (Crypto Optimized Irrevocable Non-grantor Trust), a vehicle specifically designed for holding, administering, and protecting digital assets.
The COIN Trust offers a range of features and benefits tailored to the unique needs of the crypto-investment environment. These include multi-signature private key management, institutional-grade trade execution, systematic performance and tax reporting, qualified custody of digital assets, and access to favorable trust, estate planning, and tax laws.
Conclusion
Wyoming has positioned itself as a leading state for estate planning with digital assets, particularly cryptocurrencies. With its tax-friendly environment, innovative trust laws and structures, strong privacy and creditor protection laws, comprehensive legal framework for digital assets, and companies like Two Ocean Trust leading the way, Wyoming offers a favorable jurisdiction for managing and protecting digital asset portfolios.
When considering estate planning with digital assets, it is important to consult with experienced professionals who can navigate the complexities of this emerging field. By leveraging Wyoming's advantageous laws and structures, individuals can ensure the secure and efficient administration of their digital assets for generations to come.
Note: The information provided in this article is for educational and informational purposes only and does not constitute legal or tax advice. Individuals should seek professional advice from their own independent tax and legal counsel.
