Edition #24: Death, Taxes, and Changing My Mind

Plus: Tips to handle crypto inheritance

written by oz chen

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Happy Summer Solstice. With the mask mandate eased in LA, I went shopping without a mask and it felt liberating. What a nice change of pace.

The world collectively had to deal with more changes than ever in the past year. Not only about masks and vaccines, but also personal changes in relationships and careers. Personally, I find that the hardest type of change involves changing one’s mind.

In this edition, I talk about how I’ve changed my mind about El Salvador’s Bitcoin news, tax leaks, and life insurance.

🇸🇻 Double take on El Salvador’s Bitcoin story

Last week, I wrote about El Salvador accepting Bitcoin as legal tender. As a crypto enthusiast, I’m bullish about the development. But this Bankless episode (timestamp: 51 minutes) surfaced up some points I haven’t considered.

El Salvador’s move makes Bitcoin maximalists happy—they want Bitcoin to be the standard currency for the world. That’s not necessary the right or best move; it’s arbitrary to classify Bitcoin as the best blockchain, and we’re already in an multi-chain society (nod to Ethereum).

Making Bitcoin legal tender means El Salvadorans have another currency option, but it’s better if it comes from a spirit of democratizing finance; not just because Bukele – whose rise to power is controversial – wants to increase the country’s GDP. Check out these other 4 concerns of El Salvador’s Bitcoin story.

For now, I’ll stay neutral of think of this as an evolving market experiment.

Here’s another story where I’m not sure whether the ends justify the means.

💧 ProPublica’s billionaire tax leak

A ProPublica leak on how America’s wealthiest avoid income taxes recently went viral. They lean into billionaires like Jeff Bezos, who in some years has paid zero taxes while his wealth ballooned.
Like many, I initially reacted to the headlines of thoughts like “of course, corrupt rich oligarchs.” I had to catch myself and unpack what’s actually happening with the richest people’s taxes:

  • The rich usually have their wealth concentrated in stock and other investments.
  • If held long term and then sold, stock gains are taxed at a lower rate (up to 20%) compared to income tax rates.
  • That’s why it’s so common for CEOs to elect to be paid as little as $1 in salary and get compensated mostly in stock instead.

Check out Saving Journalism’s searing critique of the ProPublica piece, including its use of the term “tax avoidance.” This sounds similar to, but is worlds apart from illegal tax evasion. Anyone would avoid paying more taxes if they could do it safely and legally.

Investor sidebar: a company's executive team that owns a lot of stock - and chooses to be paid in it - looks like a bullish signal. If I invest in a stock, I want that company's executive team to be incentivized to perform.

I feel mixed about the ProPublica approach. On one hand, it taps into the us-versus-them populist framing of the problem. One the other, it brings attention to systemic problems of the U.S. tax code.

Maybe this kind of hit piece spurs discussions like capping deductions for the wealthiest or specific taxes on the ultrarich.

What’s your take on this style of reporting?

☠️ Don’t die without sharing your crypto passwords

60% of adults don’t have a will, even accounting for the havoc of Covid-19.

Lacking an “in case I die” plan can be especially problematic for cryptocurrency investors. When the CEO of a crypto exchange QuadrigaCX died, he locked customers out of $215 million in assets. No one else had the password, and not even his family could access those funds.

This is preventable, but it takes some effort. According to the Hustle, crypto investors could at least take these few precautionary steps:

  1. Write down a list of your crypto assets, where they’re located, and how to access them.
  2. Store this information in a secure place, e.g. a piece of paper in a lockbox.
  3. Assign a digital executor to access and delegate your crypto—this is typically a younger family member.
  4. Create a will to specify who gets what.

There are services that help automate the ability to handle crypto inheritance: Casa, Inheriti and Trustverse are examples of startups working on these solutions. But I feel ambivalent. Startups can come and go—what if one of these services shut down in a year? Will their protocols still work and distribute my information to my family if I die?

People will begin to trust the crypto economy the more that it mirrors – or leapfrogs – traditional banking. You can already earn massively more interest in crypto interest accounts. The ability to add a beneficiary to financial accounts is common feature traditional banking customers expect.

I see some early signs of development: check out these “add a beneficiary” FAQ articles on BlockFi, Coinbase, and Kraken.

If you’re a customer of a crypto exchange, you should file a feature request ticket and tweet at a them. Or you can use my message to retweet them. Some product teams pay attention to this kind of feedback more than you’d think.

⛑ Speaking of dying…is life insurance worth it?

Life insurance is cheaper when you’re young and healthy. But I’m ain’t got no wife nor kids! My siblings have life insurance, but that’s definitely saved for their partners and kids (I’m not salty). That means that if I got life insurance now, I’d be a very generous uncle.

I have to catch my own short term thinking. Life insurance is usually bought as a hedge against future uncertainty. Similar to a mortgage, term life insurance covers up to 30 years, and the rate is locked in once you buy the policy.

Some policies even have living benefits like getting a payout if you get a major illness. That could be very valuable, considering our shitty, high-cost healthcare system.

With every investment, there’s a tradeoff. Let’s say a $1 million term life policy costs $1000/year. Can I park $1000/year somewhere else that generates better returns or protection than life insurance? I checked this compound interest calculator and found $1000 earning 10% annually over 30 years translates to almost $2 million dollars.

Those returns are difficult to attain over such a long period of time, but the S&P 500 may be able to match that. At a more modest 5% return over the same period, you’d get about $800K. In that case a $1M policy – especially if it includes living benefits, may be totally worth it.

I’m still shopping around so let me know if you find a great insurance carrier with living benefits. If I buy a policy, I’ll let y’all know what I end up getting.

🤪 Just for fun: Don’t try to be be liked by everybody—you don’t even like everybody!

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