CEA Digital Asset Management 5 — Questions and Answers
Question 1: Which IRS form must an estate file if it holds more than $10,000 in foreign cryptocurrency exchange accounts?
- Form 1099-DA
- FinCEN Form 114 (FBAR) (Correct answer)
- Form 3520
- Schedule D of Form 1040
Correct answer: FinCEN Form 114 (FBAR)
Foreign financial accounts, including foreign crypto exchange accounts, exceeding $10,000 in aggregate value must be reported via FBAR (FinCEN Form 114).
Question 2: A decedent ran a Substack newsletter with 10,000 paid subscribers at $10/month. For estate planning, the advisor should prioritize:
- Immediately canceling the newsletter to avoid ongoing obligations
- Valuing the subscriber base and planning for business continuity or sale (Correct answer)
- Treating the newsletter as a non-transferable personal service
- Reporting the subscriber data to the FTC within 90 days
Correct answer: Valuing the subscriber base and planning for business continuity or sale
A paid newsletter with recurring revenue has significant goodwill and cash flow value that must be appraised and addressed through business continuity or sale planning.
Question 3: What is the primary purpose of including a 'no-contest' (in terrorem) clause in a will that contains digital asset bequests?
- To prevent heirs from selling digital assets for five years
- To discourage beneficiaries from challenging the will and risking their inheritance (Correct answer)
- To require heirs to maintain the decedent's social media presence
- To block the IRS from auditing digital asset valuations
Correct answer: To discourage beneficiaries from challenging the will and risking their inheritance
A no-contest clause deters will challenges by providing that a beneficiary who contests the will forfeits their share, protecting the decedent's digital asset distribution plan.
Question 4: A client transfers $50,000 in Ethereum to an irrevocable trust. Which gift tax rule applies?
- Cryptocurrency transfers to trusts are always income-tax-free events
- The transfer is a completed gift subject to gift tax rules and must be reported on Form 709 (Correct answer)
- Crypto gifted to a trust receives a stepped-up basis equal to market value
- The transfer is excluded from gift tax as a digital asset transfer
Correct answer: The transfer is a completed gift subject to gift tax rules and must be reported on Form 709
Transferring cryptocurrency to an irrevocable trust is a completed taxable gift; if it exceeds the annual exclusion, it must be reported on Form 709 and applied against the lifetime exemption.
Question 5: A client's estate includes login credentials stored in a personal notebook in the home safe. How should the advisor characterize this method?
- Best practice, as physical storage is the most secure method
- Acceptable but risky — the notebook is vulnerable to physical theft, fire, and discovery by unintended parties (Correct answer)
- Non-compliant with RUFADAA requirements for digital asset documentation
- Legally invalid as a method of granting fiduciary access
Correct answer: Acceptable but risky — the notebook is vulnerable to physical theft, fire, and discovery by unintended parties
Physical notebooks can be lost, destroyed, or found by the wrong person; while legally valid, advisors should recommend supplementing with a secure digital vault or attorney-held copy.
Question 6: Which type of digital asset is most likely to have zero estate value despite significant emotional importance to the family?
- An online bank account with a balance
- A gaming account with virtual currency and achievements on a platform with non-transferable terms (Correct answer)
- A domain name generating ad revenue
- A Robinhood brokerage account holding stocks
Correct answer: A gaming account with virtual currency and achievements on a platform with non-transferable terms
Many gaming platforms' terms of service prohibit account transfers and void the account at death, rendering virtual assets legally worthless despite sentimental value.
Question 7: A CEA is reviewing a trust document drafted before digital assets were common. What should the advisor recommend?
- File the trust with the probate court to obtain digital asset authority retroactively
- Amend the trust to include explicit digital asset provisions and fiduciary access authority under RUFADAA (Correct answer)
- Execute a separate digital asset will to supplement the trust
- Create a new revocable trust and terminate the old one
Correct answer: Amend the trust to include explicit digital asset provisions and fiduciary access authority under RUFADAA
Older trusts typically lack digital asset language required under RUFADAA, so a trust amendment (restatement) adding explicit digital asset authority is the most efficient update.
CEA Digital Asset Management 5
Which IRS form must an estate file if it holds more than $10,000 in foreign cryptocurrency exchange accounts?