Matthew McClintock of Bespoke Services joins me on the show to chat about his family office and private trust company for UHNW American clients. We chat:
- What level of wealth qualifies here?
- What are the concerns of Bitcoin-affluent families?
- What kind of structures can they use?
- Benefits of these structures
- Trade offs of the approach
- How the Sovereign Individual thesis may play out
- Should UHNW Americans consider staying out of these structures?
- What’s needed from a technology and culture perspective?
- Site: Bespokeservices.io
- Twitter: @mcclintock_m
- Swan Bitcoin
- Unchained Capital (code LIVERA)
- CoinKite.com(code LIVERA)
Stephan Livera links:
- Follow me on Twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
(Note: There are some errors in the transcript that have not been corrected)
Stephan Livera – 00:00:01:
Matthew, welcome to the show.
Matthew McClintock – 00:00:03:
Thanks Stephan it’s great to see you again, and it’s an honor to be with you today.
Stephan Livera – 00:00:07:
Yeah, so I enjoyed our chat. So for listeners, we met at Bit Block Boom recently. So that was a couple of months ago. And yeah, we had an interesting chat, and I thought this would be would also make for some interesting discussion for the listeners out there, whether they are a high net worth person themselves or whether maybe they’re curious about that world as well. So do you want to just tell us a little bit about yourself and what you’re doing in the world of bitcoin?
Matthew McClintock – 00:00:32:
Yeah, sure. So I run two businesses. One is a law firm called Evergreen Legacy Planning. It’s the law firm based in Colorado. We’re just up in the mountains a little bit just west of Denver. And our practice has historically served ultra affluent clients, US Based clients who just have significant levels of wealth, and that means different things to different people. But for us, it’s usually at least $50 million worth of an aggregate estate. Most of our clients are well above that, but that’s kind of where our threshold starts. I also run a company called Bespoke Services. Bespoke is a multifamily office exclusively serving ultra affluent crypto asset clients. And the vast majority of those are bitcoin whales. And so they are two separate entities. They do two different things. But with Bespoke, we focus on wealth, strategy, design, support. We provide concierge services. We provide some privacy services around real estate holdings, and we’re beginning to develop some financial services as well through a regulated entity that we’re developing, of course.
Stephan Livera – 00:01:47:
Yeah. So I think that’ll be interesting for listeners as well, potentially those who want to understand what does it look like at that level. So as you mentioned, I guess the bar here, we’re talking about $50 million or what’s that two and a half thousand coins, something like that, roughly. I’m just doing mental maths. We should try to be Bitcoin denominated here, right? Anyway, so let’s say above two and a half thousand coins, roughly ballpark. And so I guess how would the needs of that kind of whale differ from, let’s say, the typical bitcoin hoddler stacker type of person?
Matthew McClintock – 00:02:24:
Well, I guess I want to make maybe a clarifying point in that we’re talking about their total aggregate wealth denominated in whatever their sovereign currency is. In our case, it’s us. Dollars. So it may or may not be two and a half thousand coins. It may just be $50 million worth of wealth, of which a significant value is held in Bitcoin. So usually we’re starting to look at some sophisticated wealth transfer and legal structures for clients who have a few hundred coins as part of a much larger nut that they’ve got. Because what we’re seeing, especially with our Bitcoin hodlers, our clients, are not ultra affluent clients who have come to Bitcoin because they see something interesting in bitcoin. Our clients, our clients who made significant wealth in bitcoin, they were early adopters. They’ve been in the game for a long time. And so they kind of ideologically believe in the value proposition of bitcoin. And for them, a lot of what their values kind of start to pivot around is not just private key succession and managing the transition of their key material in the event they become incapacitated, in the event they die. And frankly, all of us need to do that. But these clients build their wealth in bitcoin. They perceive that bitcoin has a very long horizon as a bedrock of the future economy globally. And there’s a certain amount of their bitcoin that they perceive they never want to get rid of and they want to preserve that through future generations. And so there are ways that we can design strategies that provide a high level of asset protection around those assets. We can certainly hope to get into some of that. We can significantly mitigate or eliminate some of the capital gains tax consequences that they’re looking at, either at a state level or a federal level. If they do seek to liquidate any of their bitcoin and take them off the top of the next crazy cycle that we get into, or they simply want to make sure that it becomes the last asset the family ever liquidates, it becomes again, not just the bedrock of the future global economy, but the bedrock of their family’s wealth. So there are ways that we can kind of provide security and preservation around those assets so nothing can separate their family from their bitcoin.
Stephan Livera – 00:04:50:
So when it comes to asset protection, what are we talking about here?
Matthew McClintock – 00:04:55:
There’s creditors that can surface from all kinds of ways. It could be business creditors, it could be family creditors like a divorcing spouse. It could be the divorcing spouse of one of your children. And it could also even be what we refer to sometimes in the industry as a super creditor, that’s creditors at the governmental level. And so there are different kinds of ways. There are different strategies that have different levels of protection around them that we can kind of guide the client to. The cost benefit analysis of what makes the most sense based off what you’re looking at here in the US. There’s no secret that we’re probably the most litigious country in the world. And the most common creditor is a divorcing spouse or a partner who leaves. I mean, we know that about half of all marriages are going to end in divorce. And there’s not a whole lot you can do to protect your bitcoin or your other assets if you don’t proactively plan well in advance of a potential claim. So a lot of the different trust structures, some of the different jurisdictions that we incorporate in our planning can help provide a lot of protection around those types of creditors.
Stephan Livera – 00:06:10:
So would it be right, then to say that a common recommendation or structure then, is a trust for these kinds of individuals who have an elevated need for asset protection.
Matthew McClintock – 00:06:20:
Yeah, I mean, trusts definitely play a significant role. There are a lot of different kinds of trusts that do a lot of different things. So a trust really at its core is just a legal relationship between the creator of that trust, which we refer to usually as the settlor, the beneficiaries of that trust- the people for whom the trust is established, and the trustee of that trust- the one who is ultimately charged with fiduciary responsibilities to manage that trust for the benefit of the beneficiaries. According to the settlor’s objectives and consistent with the provisions of the prevailing jurisdictional law that you incorporate. And so within that framework, that is a trust. And there are revocable trusts that you can maintain full control over, for which you have no asset protection at all, you have no tax benefits at all. Revocable trusts really serve as a succession mechanism so that your trustee can simply step into your shoes and manage your assets without court intervention in the event you become incapacitated or in the event you die. That’s just the garden variety revocable trust that at least here in the US. And any trust favored jurisdiction, everybody, frankly, ought to have that, even your basic plebs like me. Then there are irrevocable trusts, trusts over which you have surrendered some level of control. And it’s that surrender of control that starts to get you some of the asset protection objectives, some of the tax outcomes that you’re looking for. And even within that, there are dozens and scores of different categories of irrevocable trust based off of the objectives that you’re seeking to accomplish. And so for clients with significant wealth, a lot of what we do is analyze what their objectives are, go through some cost benefit analysis with them, and create really it’s almost a portfolio of legal strategies for them, knowing that each element in that portfolio has different outcomes.
Stephan Livera – 00:08:31:
I see. Yeah. So in a way, you’re helping consult with that client and helping them figure out what is the right kind of trust for them. And in some cases, that’s an irrevocable trust and what’s the right type of trust. So coming back to what you mentioned earlier around capital gains tax and tax planning, what are some of the benefits there from that side?
Matthew McClintock – 00:08:50:
So here in the United States, we not only have federal capital gains tax imposed on gains when you recognize them through a liquidation event, a lot of the various states have state level capital gains tax that gets attached as well. California is among the most usurious. With 13.3% state level tax on top of the 20% federal income tax on capital gains, plus an additional 3.8% kicker that you get at the federal level. So Massachusetts is also likely to pass an additional 4% sur tax on all income over $1 million, taking income over, including capital gains income over a million dollars to almost 10%. So some of the strategies that we’re incorporating are irrevocable trusts where we change the identity of the taxpayer from the individual settlor of that trust to the trust itself through a complex trust structure. And we base that trust in a jurisdiction like Wyoming that has no state level income tax on gains or on ordinary income, so that we shift income generating assets into those types of trusts, whether it’s capital gains or whatever. We can put Bitcoin into that trust. When the client wants to sell the Bitcoin, it can get sold at the trust level through a Wyoming structure, and they still have to pay federal, but they can get out of state level income tax. And when you’re talking about almost 10% or over 13%, that becomes really consequential. And then at the federal level, there’s not a ton we can do unless we start incorporating charitable strategies. There are some irrevocable charitable trusts that allow settlors people who create the trust to at least significantly defer the capital gains over, stretching out the capital gains recognition over their lifetimes, usually. So we have a large gain recognition event in one year. We can either eliminate all of the capital gains at that level, or we can simply stretch it out for a significant period of time, allowing the client to then reinvest and outrun the capital gains recognition over a period of time.
Stephan Livera – 00:11:19:
That’s interesting as well. And I’m also curious as well. So you mentioned this concept of okay, as an example, if that client is setting up an irrevocable trust and they’re putting some of their coins into that trust, is there any tax event on doing that or is it only on the back end when you sell?
Matthew McClintock – 00:11:33:
Yeah, I mean, it’s complicated, the question is not that straightforward to answer. There are different types of taxes that we have to consider when we make those transfers. From an income tax perspective, that is typically not an income recognition event. So we have what’s called carryover basis, which means that the basis for capital gains tax purposes inside the trust is the same as when it was in the hands of the settlor themselves. So there’s not a gain recognition event, but we also have to contemplate the possibility of lifetime gift tax. And so when we’re structuring here in the United States, we’ve got this currently unified gift and estate tax regime here in the US. And once you are making gifts above a certain threshold, then a gift tax of 40%, that’s four zero percent,would apply to gifts over that amount. And so a lot of what we’re doing on the wealth strategy side is creating layers of structures such that we can actually shift well more in advance, well in excess of the gift tax exemption into these trusts without actually paying gift tax on those transfers.
Stephan Livera – 00:12:52:
I see. Yeah. Complicated question. Hey, complicated answer. So I guess I’m also curious as well, and maybe listeners are too, how many people actually seriously consider going expat or going to some other jurisdiction. And I guess maybe there’s probably two parts of this, right? On one side, it’s kind of just inside the US. Right? Like, I’m sure that’s a common thing where people say, I don’t like the state tax in this state. I’m going to move over to the zero tax, at least at the state level. And then on the second level, there are some people who think seriously about leaving the country. So I’m curious about your thoughts there. Is that something a conversation you end up having with clients also?
Matthew McClintock – 00:13:31:
Yeah, definitely. In the US. Moving from one state to the next is really quite popular. It gets a little bit sticky when you’re trying to leave some high taxing jurisdictions. California, New York and Massachusetts or some of Illinois are some of the most aggressive jurisdictions. They’re some of the highest tax jurisdictions, and they’re very jealous of their tax revenues that they get to collect. So when Californian wants to move to Texas or they want to move to Wyoming or Florida or someplace like that where there is no state level income tax, they often will go through a lot of rounds with the Department of Revenue in those jurisdictions to establish when they left the state, when did they establish their residency in the new jurisdiction. But we see that a lot. And as I mentioned, for a lot of these clients, especially if you’re staying within the US. Borders, we’ve got the ability to create a lot of strategies that take advantage of the laws of a zero tax jurisdiction without you having to move. So we’ve got clients in California who still do not pay California income tax on their gains because of these trust structures that I’ve talked about. Now, again, there are a lot of restrictions on how those trusts can work, but if you’re okay with those restrictions, the tax outcomes are really significant. As to the international expatriation question, I don’t see my clients doing that simply because they’re so comfortable living in the United States. Their family is here, their businesses are here, their real estate positions are here. And for them, the switching cost of going to another jurisdiction is simply greater than the potential tax outcomes because you also have a massive exit tax if you simply want to burn your passport and become a citizen of some other country. But what I do see a growing number of clients interested in is not necessarily severing ties with the US. But beginning to open ties with a secondary jurisdiction. So one of the services that we’re helping clients navigate is establishing residencies and getting a pathway to a passport in another high quality jurisdiction like New Zealand, like Switzerland, like Portugal, places like that that are not some tiny island somewhere that nobody can find on a map, but to a developed country with a good reputation internationally. So in the event we go to another covid lockdown situation where things just really go off the rails, as far as our clients are concerned, they’ve got options.
Stephan Livera – 00:16:15:
Right. And of course, many of us are libertarian or libertarian leaning, let’s say. And so I can understand definitely the last few years has driven a lot of people to really seriously consider this, whereas let’s say five or ten years ago, if you were to have that conversation, then it would have been a very different conversation. Whereas nowadays, I think people who can access this are actually starting to think about it, talk about it, be interested in this question. Even so, people talk about this idea of, oh, you should have a plan. That’s kind of the conversation now. And I’m sure you’ve seen that there would have been a big pickup in your clients on that conversation.
Matthew McClintock – 00:16:53:
Yeah, for sure. Even if things just don’t completely go off the rails in the United States, a lot of them, especially over the last several years, they perceive a stigma when they’re flying internationally with the US. Passport. And so they would like to have, whether it’s an Irish passport or a Swiss passport or something that is even a Canadian passport, the truck or blockade issue is not withstanding in others a certain degree, there’s a stigma that has begun to attach to the US. Passport. And clients like to have options.
Stephan Livera – 00:17:27:
Yeah, in a way it’s fascinating because I think when people talk about saving wealth over multiple generations, as I’m sure you do with many of your clients, it really forces you to Zoom out and really look at things at a more global and zoomed out history level. And you start to see, well, actually there were times where certain countries of the world or certain parts of the world became very predatory, whether that’s from a tax point of view, whether that’s from a mandate point of view, whether it’s from just regulation and the quality of life. And I suppose it’s hard for people to broach that conversation in a way, because it’s very emotional for many people. It’s where we grew up or it’s where our family is. But at the same time, if you have the wealth or the skill and the ability to sort of get those plan B options, then it might be worth your while, right?
Matthew McClintock – 00:18:19:
I think so. I think so. Again, we really see it as part of an overall wealth plan. I mean, part of it is tax oriented, part of it is philanthropic, part of it is asset protection oriented, part of it is securing the inheritance for future generations, and part of it is having optionality as far as where you live in this world and how you get around. And so we really see it as a holistic kind of comprehensive way of planning for these clients who have significant means.
Stephan Livera – 00:18:47:
Sure. And so when it comes to things like inheritance and passing things on to our children, what are some of the ways that the trust or irrevocable trust structure help us do that? Like, let’s say we want to pass it on to our children, what are some of the ways it helps?
Matthew McClintock – 00:19:02:
So it kind of occurs on a spectrum and since we’re talking about the ultra high net worth realm, I think I’ll kind of start there and maybe we can start scaling it back a little bit for people who have more modest means like me. One of the biggest challenges that we run into when we’re dealing with complex multigenerational irrevocable trust frameworks is finding an appropriate trustee. As I mentioned, a fiduciary has to be on hand to manage these assets. And in order to get the privacy, asset protection and tax outcomes that these clients are looking for, they cannot personally serve as that trustee. Their kids cannot personally serve as a trustee. You have to create basically you have to air gap the trust from the controls. But then there’s a challenge of well, who else can I select? If I select my brother inlaw or some other friend? One, can I trust them to do the right thing with the assets at the right time. Two do they understand Bitcoin well enough to manage the stuff? Three, are they immortal? Will they become incapacitated themselves or die? Well, of course they will. Especially when we’re talking about trust. They can literally last hundreds of years. So it makes us think about, okay, well, what institutions are appropriate to serve as that trustee? And the answer is really very few, if any. So what do you do? The laws of the jurisdictions where we do a lot of our planning, I mentioned Wyoming. We can get into some of the why about Wyoming perhaps. But a lot of the jurisdictions in the United States allow families to establish a private family trust company that serves as the institution. And there are some external controls you have to put in place in order to get the tax and privacy and asset protection outcomes that you’re looking for. But the family controls it generationally and so the private trust company becomes the family’s fiduciary for all of the trusts inside of it. The settlors, the clients and maybe additional family members serve as the board. They do have to hire some external professionals to create enough of that air gap. But then you can create the governance protocols in place so that as children mature over time, they begin to share in the decision making process. And so now you’ve got this portfolio of trusts that are managing the assets and you’ve got the family trust company itself that is serving as a fiduciary for all of those family trust companies. And that can also have an indefinite lifespan. So you build the onramps and the protocols in place such that the kids and future generations can begin to share in that decision making process. So for the ultra affluent, you can get a really elegant, highly integrated solution for managing not just bitcoin wealth, but all the family wealth.
Stephan Livera – 00:21:54:
In guessing then that some of those trusted professionals, would they actually be some of the families lawyers, accountants, other people like that? Or who are we talking about here when we’re talking about trusted professionals or semi trusted or whatever?
Matthew McClintock – 00:22:07:
Yeah, I mean, trust is always a loaded term in the bitcoin world. I know. So in order to have a properly functioning, legally compliant family trust company, you have to have a professional fiduciary with citizens. That means on the ground in the jurisdiction that you’re claiming or your trust home. So that means that you either need to have an individual or we believe that for continuity purposes and for insurance and professionalism purposes, that’s going to be a trust company. But you’re not hiring that trust company as a trustee, you’re hiring that trustee to run your trust company. And you can fire them at will. But then often the clients will have us serve on various committees, whether it’s overseeing distributions, helping with investment decisions, helping with philanthropy decisions. Primarily, just as an experienced sounding board, the clients get to make all the decisions and they can fire anybody in this trust company at will. But these are complicated structures with a lot of complex decisions that need to get made. And so, yeah, the clients CPAs often will serve, trust attorneys might serve, wealth advisors might serve. But we tell clients, you’re not putting a ring on the finger, you fire anybody anytime you want to. You just have to create, you just kind of have to maintain the protocols that the trust company requires in order to comply. It’s cool because it allows the family to control all the decision making all the time, but in a way that from a tax perspective is air gapped.
Stephan Livera – 00:23:47:
I see. Yeah. And so out of curiosity, and probably because many listeners are also thinking about this, why bother with all this stuff? Theoretically, what if they just have a multi SIG and have three or five split up across different family members? Just for the sake of a hypothetical, why not do that?
Matthew McClintock – 00:24:08:
Yeah, I think for a lot of clients, for a lot of people, they need to do that, for sure. And again, we look at this as a spectrum. To our mind, this is not an all or nothing proposition. There is some bitcoin, I take my own advice on this stuff. There is some level of bitcoin that you have that I believe, I suspect that you’ve got some level of bitcoin that you never want to get rid of, and ideally, you want future generations to not get rid of, and you want to be able to create options around that. But then there’s other bitcoin that I simply want to make sure I pass on to my kids when I’m gone. And there’s other bitcoins that I want to have in unilateral self sovereign custody on a cold storage device. If I want to send some bitcoin to a friend or if I want to transact in that, that becomes challenging from a tax perspective, as you well know. But I’ve got some self sovereignty. I’ve got some multisig, I’ve got some custodial supported bitcoin because I’ve created for myself this type of spectrum. But I think at the macro level, there’s a lot of conversation in the bitcoin space, which I know is going to be maybe a little bit unpopular. In my mind, bitcoin succession is not as simple as making sure my private keys go to the right person. Part of it is that person prepared for it? Do they know what it is? Do they care about it as much as I do? Odds are they probably don’t because I’m the bitcoiner in the family, my kids know about it, but they don’t get it really. And so if I just have a framework where I’ve created my trailer breadcrumbs to leave my family to my singlesig, where I’ve got my multisig set up, and the bitcoin ultimately changes hands, okay, that’s great. But now I’ve given this perfect digital asset bearer instrument to people who don’t understand it, aren’t prepared for it, and may liquidate it right away. And I think we’re just naive to think that the taxing authorities aren’t going to figure out how to track down bitcoin blockchain transactions and either blacklist stuff that’s gone through mixers or be able to figure out that I died 20 years ago and my kids got my bitcoin. What’s their basis for capital gains tax purposes? Because at some point they’re going to want to monetize that, and at some point it’s going to surface on somebody who’s going to do a KYC on those tokens and on those clients on my family. So what’s their basis for capital gains tax purposes? If I have planned appropriately through various trust structures and I can substantiate that basis, or if I die with that value in my gross estate, for US Federal estate tax purposes, they get a step up in basis. They get a new basis at the fair market value of my date of death. So if bitcoin is six figures or more by then, they get a new basis of six figures or more. If I simply have found a way to technically hand off my key material, but we don’t have a paper trail saying what it was worth when my kids got it, then they go to liquidate it, or then they go to borrow against it, well, their basis is going to be presumed to be zero for federal US Tax purposes, both state and federal. So the capital gains tax liability could be immense and avoidable. If you plan appropriately or if I died and I’ve got a stack of bitcoin and it’s over the federal estate tax exemption at that point, and I’ve simply found a way to kind of sneak them my digital gold around the corner, around my tax return. Well, not only would the tax liability from a capital gains tax perspective be immense, there would have also been penalties and interest, civil and potentially criminal accruing from my date of death. And so I guess I get a bit of a soapbox about this, but I believe that if bitcoin really is the bedrock of the future global economy, which I believe it is, if we believe it is this pristine asset, the most perfect form of money we’ve ever seen, I think we have to treat it that way and give it the planning that frankly, that it deserves. But it comes with trade offs. I mean, I get that, of course.
Stephan Livera – 00:28:29:
Yeah. So part of this trade off, and of course it depends what level you’re at. So as we’re talking about the family trust company and this irrevocable trust that’s, as you’re saying, at this ultra high net worth level, how does it change if, let’s say, as you were saying, somebody is not an ultra high net worth individual, but obviously they’re bullish on bitcoin. They think this thing is going to be every coin is going to be millions of dollars per coin in fiat terms. What should they be thinking about? How should they be managing?
Matthew McClintock – 00:29:03:
Well, I think the first thing to remember is that any type of planning should be iterative, because planning for bitcoin at a US Dollar denominated spot value of 19,000 is going to be very different than planning for bitcoin when the US. Denominated spot value is in the hundreds of thousands or millions of dollars. So we still live in a US Dollar denominated world by and large. Whether that changes in my lifetime, I think it’d be interesting to see if that happens or not. But we plan for what we know. And so because what we know changes all the time, planning needs to be iterative. I think it starts with creating a reliable trail of breadcrumbs, private key succession. How do you lead your spouse or partner or the person or persons that you trust and the individuals that you ultimately want to receive this bitcoin, how do you lead them to the bitcoin? That’s step one. So no more coins end up getting lost and locked forever because we’ve mismanaged the succession. I think understanding how multisig works and then selecting the appropriate multisig signature holders is critical, but really a lot of it goes to preparing your family, preparing the people that you ultimately want to pass that onto. What is bitcoin? Why do you care about it? I mean, I’ve had a lot of conversations with my wife, I’ve had a lot of conversations with my daughters about this, and I think they’re kind of getting there. But if I were to die sooner rather than later, I’m relying on my multi signature holders. I’m relying on the individuals that I’ve shifted my decision making authority to in the event of my incapacity or death. And I’ve created some clear instructions about what I believe about bitcoin and why I want that to be the very last asset liquidated in the event they have to liquidate. Because as bitcoiners, sometimes it’s easy to think that everybody in our circle sees bitcoin the same way that we see it. And I just don’t think that that’s the case. I think that spouses, partners, kids, parents, they might know that we’re into bitcoin, but they may not share our conviction about it. So whether we use a revocable living trust, whether we use some other type of basic estate planning strategy, kind of without even thinking about the asset protection or tax consequences, creating a legally enforceable written series of instructions and selecting the right people to help make those decisions, that’s really where the game is played. And frankly, every bitcoin needs that. And just a quick word, if I can, about the difference between wills and trusts. There’s a huge misunderstanding about wills and trusts here in the United states. A lot of people think, well, if I simply have a will, then I can just allow my assets to be transferred to the person I want to have received that when I die. That’s true to a point. However, in the United states, if you have a will, all that will does is provide legally enforceable instructions to the court in your jurisdiction so that a judge gets to, in a public proceeding, tell the world what you have, tell the world what you want done with it, and tell the world who’s going to get your stuff, whether it’s bitcoin or whatever. When you have a trust, you privatize that process. So the trust provides for the facilitation of transfer and event capacity or death, but it does it in a way that’s private, where we don’t end up going to a judiciary somewhere to publicize what we have.
Stephan Livera – 00:32:41:
I see. Yeah. So it might be useful from, in a weird way, a privacy perspective then. Also, this is that other point around custody. So how is the custody situation in using these more advanced, let’s say, or even the basic structures compared to the person just doing DIY?
Matthew McClintock – 00:33:03:
Yeah. So at the basic level, when you’re talking about a revocable trust, like I was just talking about that kind of base level estate plan that everybody needs to have, at least during your lifetime, I think multisig is probably the way to go because you’re not looking to sever your own control. You can have unilateral control, and that works just fine. But if you want to manage succession risk when you’re looking at multisig or something like that, but once you die and the multi signature parties kind of collaboratively take custody of your Bitcoin, there’s still the pesky issue of who is the trustee of the trust and how does that trustee get custody of the Bitcoin. So the trustee is going to have to probably have a controlling quorum of the multisig or they’re going to have to put it in a centralized custodian. And then if you have, because multisig, at least currently, it doesn’t rise to the level of meeting custodial standards in any jurisdiction in the US. It’s simply a great, it’s a functional workaround to manage succession risk and transfer, but it doesn’t create an opportunity yet for trusty type structures. So we’d be looking at a professional custodian who can custody digital assets, whether that’s here in the US. Over in Switzerland, Lichtenstein, someplace like that. So once the trustee then has control over those assets, then they’re going to have their fiat assets that they’re supporting, whether it’s real estate positions or US dollars or other sovereign currencies, or precious metals, or an equities portfolio and a Bitcoin portfolio. So it’s going to just operate just like that. And then they’re going to account to the beneficiaries of the trust on a periodic basis. At the more advanced level, when we do have an irrevocable trust that we’re creating for these tax outcomes, we have to go to some type of custodial framework. And so then selecting the right custodian who’s got massively deep pockets, who are complying with the regulations, that sucks in some respects because we don’t like KYC, but that’s the price we pay if these are the outcomes that we’re looking for. And so we have to use a custodian either here in the US. Or over in Europe to then serve the custodian supporting the trustee over the assets.
Stephan Livera – 00:35:32:
I see. Yeah. And so I’m curious then, what does that spell for the ecosystem? If a lot of the coins end up in centralized custodians, does that portend something bad for the asset if, let’s say, the legal system as it is today in the US atleast encourages this kind of behavior for the ultra high net worth people?
Matthew McClintock – 00:35:54:
Yeah, it’s a good question. I think realistically, the two worlds are going to have to find a way to meet in the middle. I think that to a certain degree, we have to just weigh the cost benefit analysis. When Satoshi first issued the white paper, we know it was a peer to peer electronic cash system. It was designed as a medium of exchange. That’s why he created it. That’s my interpretation of why he created it. That’s the way I read the white paper. But the very nature of the algorithm has made it become this beautiful store of value. So I think, frankly, that Bitcoin itself, layer one is the bedrock on which the foundation is built. And then we’re going to have second layer applications, Lightning Network, that kind of stuff, that’s going to then facilitate peer to peer transfers, either natively in bitcoin or in some other asset that is reserved, backed by bitcoin. Whether it’s a bitcoin backed, stablecoin, who knows? But if bitcoin is the bedrock, I think that we’re going to have to find ways to protect the bedrock. And that is going to inherently be, in my opinion, it’s going to be inherently centralized. So for example, back when we had a gold standard, gold did not become a global reserve asset by a bunch of people taking it into vaults, burying it in the ground, in their field somewhere and just saying, yeah, I’ve got my gold. It became a global reserve asset when it became centralized and intermediaries started to say, okay, well, based off of this gold, we can then transact in reserve notes backed by this gold. What bitcoin does, again, just totally my perspective, which may or may not be popular. Bitcoin can become a digital version of that. That’s not to say that the federal government gets all of our bitcoin, but I think that we can decentralize the underlying store of value. But there’s going to have to be, in my opinion, a certain level of concentration of that, not in one location, but hopefully in a lot of jurisdictionally diverse locations with safeguards in place to protect the integrity of the assets. So we can then use this bedrock for the global economy. I don’t know. That’s why I struggle with some of the maximalist perspectives. And from a token ownership perspective, I’m absolutely a bitcoin maximalist. But some of the challenge I have is that if we’re all just hodling and we’re not telling anybody that we’re hoddling and we’re trying to create our own world rather than try to bring the world as it exists in line with the asset that we believe in. I think that we’re kind of limiting what bitcoin is. I think we’re kind of serving as an impediment to the expansion of bitcoin if we are so opposed to centralization in some cases.
Stephan Livera – 00:38:54:
So it’s an interesting tension I see here because there will be, of course, bitcoiners, and probably again from a libertarian perspective who are worried about future encroachment from the government. We may see moves made in terms of wealth taxes coming. We may see moves made in terms of unrealized capital gains taxes coming. And then maybe people who are like I would rather the whole idea is to make this parallel outside system. But I certainly take your point that given the current legal system, you could argue there are incentives here. So as you mentioned, the step up basis, right? So the idea is if you pass it down to your children, they instead of having you inherit your lower cost basis and paying taxes based on that, if they inherit this higher basis, then there’s a smaller difference there when they’re spending those coins, we’ll see what happens. I mean, the ideal case would be for there to be no capital gain tax on bitcoin. And perhaps that’s something every bitcoiner should be out there, they should be trying to make that happen. Although I understand even here there are different views. There are some people saying, no, it should be fully just make your own system, just build the new, whereas others are seeing it more and maybe this is more aligned with your view, which is more people should try to change the current system. And even if that means politics and lobbying in the current system, then so be it, because otherwise this thing won’t actually get to the level. And I guess that’s probably the argument. That’s probably the side you’re taking, right?
Matthew McClintock – 00:40:23:
Well, I think so. I think at some point these parallel worlds have to merge. I really don’t realistically see that. Intellectually, I can’t understand how you can have two worlds that exist in parallel and they’re always perpetually in parallel. If bitcoin is just going to be the bitcoin world, we’re going to be a very small group, having our own parties and talking about how the rest of the world is crazy. Where I think I represent part of the emerging financial services industry is that we’ve got the bitcoin world, which frankly is largely the world as it should be. We have the existing fiat world, which is just the world as it is. And how can we merge the two together and preserve the very best of what bitcoin is and bring the fiat world in line with bitcoin? I think on the bitcoin side, I think we’re going to have to give up some things. I think there’s going to have to be some compromises. I don’t think it’s realistic to say that there’ll never be capital gains tax in the US on bitcoin. There’s capital gains tax on gold, there’s capital gains tax on investment real estate, there’s capital gains tax on anything that is property. And I think it will always be that way. And I think that it’s unrealistic to believe that that won’t happen. I think what needs to happen is if you and I are transacting in gold, let’s say bitcoin doesn’t exist and you and I are gold bugs and we are transacting in gold, there would still be that very same gain recognition or loss recognition event. Every time we’re swapping nuggets back and forth. We’d have to go to somebody who’s going to establish the value of that and then whether we report it or not, we’re going to have a taxable event. It’s income to you, it’s a capital gains event for me. Again, this is probably unpopular, but bitcoin should probably not be any different, but maybe my imagination is just too limited. But I don’t really see the entire world burning down while the bitcoin world just continues to grow organically and ultimately this whole new bitcoin based order takes over. If that’s the case, the world is going to be kind of a terrible place that Bitcoin has to live in while the rest of the world burns. I really think that the future for me and for Bitcoin is that we focus on bringing the rest of the fiat world into alignment with the values of Bitcoin as the hardest money, the most secure, pristine collateral we’ve ever known, and reorienting the global financial economy around that. But that’s my perspective on it, anyway.
Stephan Livera – 00:43:15:
Got you. Yeah. So let’s see what happens. Of course, I think it’s probably unlikely that capital gains tax is removed on Bitcoin in the US. I think that may be to the benefit of other countries. El Salvador, I think you’re right, as an example, and other countries around the world that don’t have capital gains, right. UAE, Switzerland, although they have a wealth tax, there’s a few others out there. So, yeah, I think it will be interesting to see what happens and will people. As an example, the Plan B conversation that we were talking about earlier that may become plan A for some Bitcoin is in the future where they think, you know what? This system is costing me too much. This other system is better. Let me go over there. Right. And I know there are some famous historical examples. Like, I know the Facebook guy, Eduardo Savron, he famously went for I think he went to Singapore or something to basically get away from the US tax system. So who knows if that’s kind of where things go.
Matthew McClintock – 00:44:08:
I think that’s a really good point. That’s a really good point. And I’m a fan of the sovereign individual and the 500 year delta. And there’s another one I’m forgetting right now, the fourth turning. And I think that there is a compelling case that could be made that we are already living in a post American generation. One of my takeaways from Sovereign Individual, I guess, is that Rome had fallen 300 years before the world realized that Rome had fallen. I think it’s possible that we’re living in a postboom world for the United States. I mean, look at how we’re governed, look at who makes the decisions. These septuagenarians octogenarians detached from any accountability. We’re more polarized than we’ve been probably since the United States Civil War. And we see a lot of meaningful innovation in other countries. Economic innovation, technological innovation, political innovation. And I think that the US is potentially at a tipping point, if not beyond the tipping point. And we could very well see significant capital flight out of the US as wealthy individuals are pursuing Plan B somewhere else where they can be aligned with the world as they see it.
Stephan Livera – 00:45:29:
Yeah, to be fair as well, yes, you can go to other jurisdictions, but I think, at least for now, there’s still a massive amount of capital, there’s still a massive amount of talent in the US. And it’s kind of like once you’re in that system, perhaps it’s easier, let’s say, to build wealth inside that system because it’s kind of relative as long as you’re inside there. Right.
Matthew McClintock – 00:45:50:
Yeah. The flight wheel spinning.
Stephan Livera – 00:45:52:
Right. And where it’s probably going to take longer to build that kind of wealth outside the US.
Matthew McClintock – 00:45:57:
I think that’s right. And we still see the vast majority of innovation. The vast majority of innovators and scientific minds want to come to the United States. Even from other countries. Because to your point. The flywheel effect. There’s already so much innovation here. And it’s easier to build within a far from perfect system than it is to recreate a better system somewhere else where you don’t have this concentration of talent already. Again, I don’t know what that means for the US writ large. I do believe that as the baby boomer generation dies off over the course of the next decade or two, there’s going to be the largest transfer of wealth we’ve ever seen in the world. Trillions of dollars passing from the boomer generation to my generation and then to younger generations, millennials and below. There’s going to be a significant who knows what the numbers are. We’ll see. Time will tell. But there’s going to be a significant increase in adoption of bitcoin and lamentably, some of the other digital assets that are out there. But there’s going to be a lot of wealth that comes into bitcoin because it’s digital, it’s immutable, it’s transportable, it’s fractional. Fractional divisible, I guess, is the term I’m looking for. Fractional, but divisible. And so it’s just such a better store of value than anything that their grandparents are invested in. So we’re going to see a lot of money, I think, come out of equities, come out of real estate portfolios, come out of closely held companies as they pass from the boomer generation to the inheriting generation. And we’re going to see a lot of wealth come into bitcoin. And I think as that wealth comes into bitcoin, especially into the millennial generation and the gen z generation, which are the largest voting block by population now, that will start to change policy dramatically in the US. The question is going to be, is it too late? And what will the outcomes of that be? But I do believe it’s going to turn. I just think that it’s going to take a generational shift because the policy is going to follow the money.
Stephan Livera – 00:48:11:
Yeah. So there’s been a lot of back and forth. I think we can make really strong arguments in either way. Right. Kind of the pro America argument, or let’s say they go outside and get whatever lower taxes or whatever other freedoms that a person might be pursuing. And you could sort of make that case of like, oh, everyone just go work remote, work overseas, find a better jurisdiction and use bitcoin for that. But anyway, aside from that, I’m curious from your point of view in terms of what the bitcoin ecosystem, let’s say, whether that’s technology or culture, what kinds of things would you like to see in the bitcoin ecosystem? Like, what kinds of developments would you like to see for handling, let’s say, ultra high net worth for that kind of market? What kind of technology and culture shifts would you like to see in bitcoin?
Matthew McClintock – 00:49:03:
Yeah, great question. I’ve got a few thoughts on that one, at least from a US regulatory perspective. I’d like us to follow what Switzerland has done providing a lot more clarity around the regulation of bitcoin and other digital assets. Frankly, I’d like to see the SEC get off their asses and provide some clarity to innovators in this space, whether it’s a spot ETF on bitcoin, whether it is providing clarity around lending facilities on bitcoin, there’s a murky lack of clarity on whether those lending facilities themselves are securities. And so I’d like to see some clarity from the commission, the comparable of the currency. I’d like to see some guidance from various state banking commissions to allow trustees to hold bitcoin as part of a trust assets and to create a regulated regime for bitcoin custodians in the US. Like they’ve done in Switzerland. I think as that happens, some of them will start to get clarity and we’ll start to get more entrance into that space. I think there’s a ton of capital waiting to go into that space, but they’re not going to go in without clarity. I’d like to see, frankly, a lot of my colleagues in the legal and financial industries learn about bitcoin and understand it and understand why it’s not a shit coin, why it is fundamentally different from any other digital asset that’s out there and that bitcoin is not crypto and crypto is not bitcoin. They need to understand the distinction. And I’d like to see some maturing of my industry around bitcoin as this bedrock asset for wealth. Also, I guess kind of at the ideological level. I know a lot of clients get turned off by what I perceive as some of the toxicity in the space. Bitcoin should be the most nonpartisan issue out there. And often bitcoin conversations get conflated with other conversations around personal decision making, whether it’s eating meat or consuming seed oils or whether or not you get a vaccine. It’s like that’s such a dumb thing to talk about. I mean, let’s talk about bitcoin as this pristine asset that we’ve never seen before and orient the world towards that, because a lot of this other stuff that is ancillary if at all related to the bitcoin world is a partisan turn off for a lot of people who could who otherwise need to understand that bitcoin is the best asset out there. And so if an individual’s first experience with bitcoin is around some of the toxic nonsense that they see on Twitter, or some of the stuff that passes for podcasts, then it’s just we’re shooting ourselves in the foot, trying to walk forward.
Stephan Livera – 00:52:00:
I see. Yeah. Let’s see. Is there anything else in terms of technology or stuff like that or in terms of securing coins. Is there anything there that you would like to see? Yeah.
Matthew McClintock – 00:52:12:
And I have to confess, Stephan, I’m not a technology, I’m not that technologically savvy. But I can tell you that one of the things I’d really like to see is ways to, via the network, somehow be able to protect the integrity of coins held in custody. I don’t know if Federated Chaumin Mints can help in some respects. I’ve listened to a couple of podcasts where that’s been discussed, but Mt. Gox happened well before I came to the Bitcoin party. But I understand it from lore and we’ve certainly all seen other exchanges collapse and we’ve seen other real problems or potential problems with centralized custody. I’d like to find a way technologically such that if a Mt. Gox were to happen again or Quadriga or something were to happen again, that the coins could be recovered somehow. And I don’t know again if it’s like a Chami and Mint type of solution where the tokens themselves are in a Federated Mint and a member of the Federation is the custodian, and they collapse, they get hacked, they go bankrupt or whatever, they simply are gone from the Mint or from the Federation and there’s a replacement that plugs in. I don’t know. I don’t know what that would possibly look like. But I think that what I’d like to see development technologically is I’d love to see Bitcoin development around how can we create a collaborative custodial pool in a structure that qualifies as a qualified custodian for US. Regulatory purposes. But if whoever the custodian is gets compromised, then they can be replaced and the coins are still secure. I don’t know what that could look like.
Stephan Livera – 00:54:11:
You know what actually you might be describing actually there’s a product called Revolt. So funnily enough, they actually have something kind of like what you’re speaking about. The idea is that you have a vault and this might be held in think of it kind of like a multisig. But the idea is that there’s like an escape or like a safe address. So if a theft is detected, you might be running some kind of watchtower and then the coins then join out of that initial transaction, spending away to actually take them back to a known safe address or to a known safe setup, let’s say. So. In fact, they presented at Baltic Honey Badger recently. So that’s kind of like an early stage of it. But they are trying to take that idea to sort of advance and make custody a little more secure potentially. And so people compare that with multi SIG, but it has certain trade offs and potentially certain benefits, certain costs in terms of complexity. So that may actually be a real example there. Now that’s early, but I think they are now becoming more public about what they’re building. So that’s actually an example which may be relevant for you.
Matthew McClintock – 00:55:16:
Yeah, that’s hugely interesting. And I’ll check them out because the question I would then have is, okay, where is that secure address and who’s got ownership or control over that?
Stephan Livera – 00:55:30:
It would have been set up as a secondary. So the idea is this is to stop theft, right? So in the case of this may not have helped. In the case of Mt. Gox, right, because apparently they went fractional, right? So they wouldn’t have been coins to recover. But in the case of, like, a theft of an exchange, let’s say, or a theft of coins from a custodian, this custodian could have if they were using this Revolut idea. And I guess, Disclosure, I’m a partner in Bitcoin Ventrues. As a syndicate, we invested in this company, Revolut, but it is potentially something related to you there. But, yeah, look, I think it was an interesting chat with you, Matthew. I think it’s probably a good spot to wrap up here. So if you’ve got any final thoughts for listeners and where can they find you online?
Matthew McClintock – 00:56:13:
Yeah, I think my final thought would simply be take your Bitcoin wealth seriously. If you care enough about it to dedicate your life to it, it’s worth planning for, whatever that means. And so it just takes work to get that done. And iterate you’re not just going to do it once and forget about it. You need to kind of keep iterating just as the network keeps iterating. People can find me mostly on LinkedIn. That’s probably where I’m a Gen Xer, so I’m probably more on LinkedIn than anything else. I do post every once in a while on Twitter. My handle is just McClintock. Underscore M is my last name. Underscore M. I’m on LinkedIn, just at Matt McClintock. And you can connect through me, through either my company’s Bespoke or Evergreen Legacy Planning. Yeah, I try to learn as much as I can about Bitcoin. I’ve dedicated my practice to this. Now. I made a pivot about two years ago to only focus on Bitcoin oriented planning because I fell in a little rabbit hole five years ago and fell in love with it and have spent the last several years just trying to get my head around how I can merge the world I know, which is estate planning and wealth management to the world that I love, which is Bitcoin.
Stephan Livera – 00:57:31:
Fantastic. Thank you, Matt, for joining me.
Matthew McClintock – 00:57:34:
Stephan, thanks. It’s been an honor. Thanks for the opportunity.