When you make a California estate plan, consider that any foreign and alternative currencies you own may be part of your estate. The amount of these currencies matters for federal estate tax purposes and for California probate, if your estate goes through probate. In both cases, your executor, estate administrator, attorney, or accountant will have to locate the currencies and assess their value.
Is the Currency Part of Your Estate?
If you are an American citizen or permanent resident, all your worldwide assets are part of your estate upon your death for federal tax purposes. For probate, all or most of your estate may get administered through the California probate courts, or some assets may be administered through another state or country’s probate system.
If you are a non-citizen and non-permanent resident, only some of your assets are part of your U.S. estate for estate tax purposes. This would include currency physically located in the United States but could exclude currency kept in a foreign bank. The location of Bitcoin, which is electronically stored, could be the subject of estate tax legal cases in the future.
Estate Tax Valuation
To determine how much estate tax your estate pays, the administrator of an estate should look to the fair market value of a foreign or alternative currency on the death date. The U.S. exchange rate for the currency is used to convert the amount of foreign or alternative currency to a U.S. dollar value to report on the tax return. If the currency’s country of origin uses exchange controls, the conversion must take them into account.
Sometimes, the fair market value may be adjusted if the currency would have lost value and the estate tax due would be lower. For alternative currencies such as Bitcoin, determining the fair market value could be tricky because (1) the value fluctuates a large amount throughout each day, without a true “closing time” like the stock market, and (2) some sources may value it slightly differently than others.
California Probate Court
Similar to estate tax valuation, the probate court looks to the fair market value of currency on the date of death. The court requires the estate executor or administrator to locate all estate assets and list their value on a special form to file with the court. If valuation of the currency is tricky as described above, the executor may need to use the services of a probate referee who has experience determining foreign currency values.
Do you own foreign currency and need help with your estate plan? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.