Why is it important to protect crypto with asset protection? Bitcoin was the first cryptocurrency launched in 2009 and henceforth it created a lot of buzz in the financial market.
Soon after it, a plethora of other different types of crypto coins were designed and launched.
It created a parallel and alternative digital asset market that helped in making P2P payments easily, quickly, and at a low cost without the need of an intermediary.
With such benefits offered, this digital asset market exploded and over the past decade a lot of people have invested in this market to boost its worth to trillions of dollars.
It was quite easy for the early adopters of crypto to make a lot of money, in fact millions, from crypto.
Being inspired by them, more and more people belonging to the middle class working category, along with the mega wealthy, stepped into this exciting space of crypto just in a couple of years.
Though a lot of these new entrants continued to amass a large amount of wealth through crypto trading and investments, not all were so privileged.
Those who could not survive or sustain in this extremely volatile market forgot one vital aspect being obsessed by the other beneficial features and opportunities offered by crypto, which is – protecting their crypto assets.
This is very important because crypto as such is still in its state of infancy and is largely unregulated.
Things are often misunderstood here and as a result it creates a lot of grey areas right from its classification to taxation.
This article will tell you how to best own and protect your crypto, its significance and a lot of other imperative things.
Why is It Important to Protect Crypto with Asset Protection?
Over the years, undoubtedly, crypto has become a mainstream investment strategy for many.
More and more people are flocking to this market space in order to explore the opportunities offered by crypto and the blockchain technology which is the backbone of crypto.
However, apart from trying to understand the prospects and potential of this asset class it is also very important to know the ways to protect your crypto.
For this, you will need to keep in mind that the crypto assets are not as safe as the traditional assets, arguably, in the first place.
This is primarily due to the significant and unique challenge created by the nature of the blockchain technology itself.
This is in spite of the fact that it creates credibility of anonymity since the data regarding the ownership and the type of coins is, first and foremost, kept secret.
The problem this unique feature of blockchain technology creates is faced typically when a person has to disclose all of his or her investments during tax compilation or during legal proceedings.
Apart from that, this feature may also constitute fraud.
However, fraud or intentional hiding of assets, it can and will surely come to the fore in the long run and catch up with you.
It goes without saying that cryptocurrency is an up-and-coming digital asset class that comes with its characteristic risks of different kinds apart from offering a lot of different wealth generating prospects.
As you may know, in this day and age, crypto faces a lot of threats just like any other asset in spite of being unique in more than one way.
Apart from the known risks of volatility and hacks, there are also threats from bankruptcy and lawsuits!
In addition to the above and the extremely high volatile nature of crypto which results in wild price swings, there are also a few significant security risks related to crypto.
These risks include and are not limited to:
- Storing the private keys safely
- Potential scams and
- Chances of fraud.
Given such probabilities, it is important to give crypto the same kind of care and protection as any other investment to ensure that it is adequately safeguarded from the external threats.
If you are new into the world of cryptocurrency or even have been around for quite some time now, it is important that you understand the significance of asset protection for your crypto.
This will incorporate its exclusive features.
Crypto asset protection is more necessary if its worth is substantial because, if you incur a loss there is practically no recourse or ways in which you can recover it.
There are a handful of options available to protect your crypto and you will need to know which one is the best option for you to choose to protect your investment.
This will raise your chances of making more profits from your crypto asset strategies by reducing the probabilities of incurring unexpected losses that you could have avoided easily.
With all that said, it is therefore a far better and prudent idea to know and implement the ways to protect your crypto assets which will ensure a much better security overall and keep it safe from the judgment creditors.
With proper asset protection you will also be able to strengthen your crypto asset strategies even further.
Typically, the first step of protecting your crypto assets is to ensure that privacy and encryption are maintained.
This means that you should never divulge your private keys to your wallet.
You should also safely store all important information regarding your wallet and crypto in a secure storage, preferably non-digital.
Therefore, it goes without saying that you will need to protect your crypto investments with an effective and reliable asset protection strategy.
The most significant benefit of protecting your crypto with asset protection trusts is that you will be relieved from the liabilities of your crypto assets.
This is very important in the crypto world because everything in here happens on the blockchain, an innovative and seemingly complex technology.
This includes recording the information of the wallets which are kept anonymous, which makes users think that their actions on the blockchain cannot be traced.
Well, it may not always be true.
At this point, you should take a deeper look at this ‘property’ aspect of crypto like any other type of asset class.
As you may know, the IRS or Internal Revenue Service considers crypto assets as a personal property and not as a currency for tax purposes.
This means that it can be traced and seized based on different factors such as the amount you owe, fraud and several others.
Ideally, the IRS classifies crypto coins based on the exact type of ownership of the virtual currency maintained.
According to the IRS, a crypto asset can be of three types such as:
- Personal property
- Investment property and
- Business property.
This means that the court will view your crypto, irrespective of its type of ownership, just as any stocks, real estate, and any other type of investment assets.
This means that in the case of virtual assets there are no special considerations or exemptions applicable simply because they do not have a physical form and are not tangible.
If ever you face a liability claim, or civil lawsuit or judgment creditor collection, the crypto coins you hold will be seized and used to settle the claims just as the same way any other asset of yours would be seized and used.
Therefore, you will need to protect your crypto assets just like any other asset of yours.
Cryptocurrencies can also be traced, much to the contrary of the common misconception due the anonymity of the owner maintained while making a transaction.
What is even more surprising is the fact that the public blockchain itself is traceable being extremely transparent in nature.
This actually means that the transactions that you make on a blockchain are much less private as compared to cash.
However, there are a few exceptions, like in the case of Monero, but these are just a handful.
Therefore, it is good and reasonable to believe that the digital assets that you hold can be traced back to you by the authorities as and when they reckon it is necessary.
This further adds to the need and importance of finding a legal way to protect your crypto from others, greedy or otherwise.
It will certainly not be very wise to think that these are hidden and therefore secure.
Therefore, be prudent enough to add your crypto in asset protection strategy.
If the crypto is protected by an asset protection trust it will sever the link between you and the coins.
This will protect the crypto assets from chances of seizures by any third party.
At this point, it is also very important to understand that the importance of protecting crypto via asset protection trusts does not exclusively involve protecting them from the judgment creditors and courts.
Rather, it can also prove to be most effective way to protect your crypto assets from anyone and from any trying situations such as:
- Your soon-to-be ex-spouse
- Any overzealous hacker
- Liability lawsuits and more.
With such vulnerabilities, one of the best strategies to protect your crypto assets is putting them into an asset protection trust.
This is because it is a legal way to protect your crypto coins from likely malicious attempts by a hacker or a third party.
In addition to that, this will also give you a complete peace of mind knowing that your crypto investment is secure.
There are different ways in which you can protect your crypto but if you are a resident of the United States it may not always be very easy for you.
However, it is certainly not impossible.
Typically, the unregulated nature of crypto itself leaves a lot of room for ensuring its protection.
However, this does not mean that you should not try and make a more calculated effort for protecting your crypto coins.
One of the best ways to protect your crypto is through offshore asset protection trusts.
Another useful crypto asset protection strategy is through domestic trusts.
All these are legal strategies to protect your crypto from the ramifications during specific events.
However, offshore asset protection may feel a bit too far-fetched than the domestic trusts which is an easier option but then your crypto with the domestic trusts will be comparatively less protected than with the offshore trusts.
You can also go for an offshore LLC or Offshore Limited Liability Company.
They will provide the same sort of protection as the offshore trusts to your crypto but at the same time will give you limited liability, if that is what you want in the first place.
However, an offshore LLC will lack estate planning and wealth management capabilities that are usually found with the offshore trusts.
Choosing Asset Protection Trusts
Which option you will choose is a matter of personal choice and preference.
It will also depend largely on you as well as your conditions.
In this regard it can be said that when you choose an asset protection trust or strategy make sure that it is best suited for your purpose and is a perfect vehicle to protect your crypto assets.
If you intend to go for offshore trusts make sure that you seek out the right consul before that so that you choose a solution that works best for your crypto.
You may consult with your financial advisor or a trust expert to help you in choosing the best solution for your crypto asset protection that will fit well in your circumstances, the jurisdictions, and all your needs.
Typically, any asset protection trust will offer protection for a variety of assets.
It depends on your personal preference whether or not you will go with one such trust that ‘also’ provides crypto asset protection or choose one that specializes in it.
You should usually go for one that has been around in the market for some time now.
This will ensure that they have more hands-on experience and knowledge about the crypto market and its typically unusual behavior.
Longer the number of years in business, the more reliable they will be.
Also make sure that their asset protection strategies are foolproof and are designed specifically and strategically to be impenetrable and protect your crypto assets in the event of threats or legal claims of any kind.
At this point you should keep one thing in mind that once you establish a trust these cannot be changed or terminated.
If the ownership of the assets is transferred to them it will be irrecoverable and you will not have direct control or ownership any longer on them.
This means that in the event where you face personal legal issues your assets cannot be claimed.
However, the good news is that you, being the grantor, will be the beneficiary of the trust.
This means that you will retain the benefits inevitably of the assets even though it is the asset of the trust now.
And, you will enjoy this without having to keep them in your personal estate.
Also, choose the right type of asset protection trusts since there are many different types of them available such as domestic and offshore asset protection trusts.
These trusts may be found in different jurisdictions as well.
Therefore, you will need to consider your jurisdiction and ensure that the jurisdiction of the asset protection trust matches with it or at least is favorable.
This is a very important factor to consider because digital currencies are treated and regulated in different ways in different jurisdictions.
If you choose a Domestic Asset Protection Trust or DAPT, you will probably get a significantly high level of protection for your crypto from their asset protection strategies.
Usually, in these situations the ownership will be legally separated since the grantor and the trust belong to the same jurisdiction.
This means that you may find much better provisions with them which will protect your crypto assets adequately in the event of any court case.
One significant plus of choosing them is that they offer much easier and cheaper solutions.
However, with that said, the Domestic Asset Protection Trusts are also not impermeable to domestic risks.
Since these trusts are situated in the same jurisdiction as the local courts, it makes them more prone to local court cases and judgment creditor claims.
On the other hand, if you wish to go for those offshore asset protection trusts you will get a much better protection for your crypto assets overall in comparison to the Domestic Asset Protection Trusts.
They will be able to provide your crypto assets with the much needed added layer of protection since they are located outside the jurisdiction of local regulations and courts.
However, you will need to be very particular about choosing their foreign jurisdiction of the offshore asset protection trust.
It should be favorable and at the same time offer the highest level of protection for your crypto assets.
There may be a few specific jurisdictions, such as the Cook Islands, that have specific regulations for trusts in place.
This makes it very difficult, if not impossible, for the foreign judgment creditors and even the courts to claim or seize the crypto assets held in a trust in the Cook Islands.
Ideally, choosing an offshore asset protection trust is more feasible for crypto asset protection because these are best suited for digital currencies.
This is because these are typically not location specific and it is easy to transfer the ownership to any foreign jurisdiction.
Apart from that, most of the offshore jurisdictions have much more reliable tax rules as compared to that of the United States and also have a much more sympathetic attitude towards crypto asset ownership.
However, there is one particular thing that you should keep in mind while choosing an asset protection trust.
It is to determine how exactly the access to the crypto wallet is managed by the trust after you transfer it to them.
This is very important because there is a significant risk in giving out access to the private keys.
Typically, it should be balanced properly against the risk of the beneficiaries who will not be able to access the crypto wallet in case the grantor dies.
Remember, the private key is the only proof of ownership of crypto.
Anyone who has it can move funds from the wallet and these transactions will be irreversible.
This means that in such situations there will be little or no means of recourse.
The best way to resolve this issue is to use unique custodial wallets.
This will protect the keys to the crypto wallet and at the same time will also enable the beneficiary to access it if the grantor of the trust dies.
Last but not least, also check that the trust has and follows precise guidelines that explain how they will manage your crypto assets.
Since crypto is extremely volatile, it poses significant risks in the event of a significant market movement, market crashes, and others.
Such specific conditions can change the value of the crypto coins held by the trust entirely.
If you know the guidelines you can rest assured that your crypto asset will be well protected and managed in such situations.
Cryptocurrencies surely do bring a lot of exciting and new opportunities to generate wealth but to avail those and retain your fortune you will need to protect your crypto assets adequately. Through this article you know why and how.