California Legal Implications: Digital Payments, Taxes, and Your Estate Plan
A recent report from SILive.com highlights a warning from the IRS: income received through digital payment apps like PayPal, Venmo, or Cash App for goods or services must be reported on your taxes. While the official threshold for receiving a Form 1099-K is over $20,000 across more than 200 transactions, the IRS clarifies that all income, regardless of the amount, is taxable and must be reported. This focus on the financial significance of digital payment accounts brings a critical, and often overlooked, aspect of modern life into the spotlight for California estate planning: the management of digital assets..
As our financial lives move increasingly online, the balances and transaction histories in these apps represent tangible assets that must be accounted for in a comprehensive estate plan. Forgetting to include these accounts can create significant legal and administrative hurdles for your loved ones after you are gone. A well-structured plan ensures your fiduciary—the executor of your will or your successor trustee—can legally access, manage, and distribute these assets according to your wishes, and properly settle your final tax obligations without complications.—can legally access, manage, and distribute these assets according to your wishes, and properly settle your final tax obligations without complications.
Digital Assets and Fiduciary Access in California
In California, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) governs how your loved ones can manage your online accounts after your death or incapacitation. While this law provides a legal framework, it is far from automatic. Without explicit instructions in your estate planning documents, your family may face a lengthy and expensive court process to gain access to accounts needed to settle your estate. governs how your loved ones can manage your online accounts after your death or incapacitation. While this law provides a legal framework, it is far from automatic. Without explicit instructions in your estate planning documents, your family may face a lengthy and expensive court process to gain access to accounts needed to settle your estate.
A properly drafted revocable living trust or will is the most effective tool to grant your chosen fiduciary the legal authority to:
– Access the transaction history of your digital payment accounts to identify income for your final tax return.
– Consolidate and transfer remaining balances to your beneficiaries.
– Manage or wind down any small business or gig work operations connected to the accounts.
– Prevent assets from becoming “lost” in cyberspace or escheated to the state..
– Manage or wind down any small business or gig work operations connected to the accounts.
– Prevent assets from becoming “lost” in cyberspace or escheated to the state.
Planning for Gig Economy and Small Business Income
The IRS notice is particularly relevant for the millions of Californians engaged in the gig economy or running small businesses. If you use apps like Venmo or PayPal for business purposes, your estate plan needs a business succession component. This plan outlines how your business interests, including the digital accounts that hold its funds, should be handled. Without it, your business could abruptly halt, leaving its value to evaporate and creating a logistical nightmare for your family. component. This plan outlines how your business interests, including the digital accounts that hold its funds, should be handled. Without it, your business could abruptly halt, leaving its value to evaporate and creating a logistical nightmare for your family.
Proper planning ensures a smooth transition, allowing your fiduciary to pay final business expenses, collect outstanding payments, and distribute the business assets as you intended, all while complying with tax laws. to pay final business expenses, collect outstanding payments, and distribute the business assets as you intended, all while complying with tax laws.
Integrating Digital Wallets into Your Estate Plan
The first step is to inventory your digital life. Create a secure list of all your digital payment accounts, social media accounts, and other online assets. This inventory should not contain passwords but should list the service, your username, and where the login information can be found.
Next, work with an experienced California estate planning attorney to update your trust, will, and powers of attorney. These documents must contain specific language authorizing your fiduciary to access, manage, and dispose of your digital assets in accordance with California law. This proactive step protects your legacy, simplifies the estate administration process, and ensures that the value held in your digital wallets is passed on to your beneficiaries, not locked away forever. process, and ensures that the value held in your digital wallets is passed on to your beneficiaries, not locked away forever.
About This Case
Source: If you used PayPal, Venmo or CashApp in 2025, the IRS has a warning for you
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– Free consultations: (866)-674-1130
– Experienced California estate planning
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– Learn more: cpt.law
Legal Disclaimer
This article is for informational purposes only. Consult with a qualified California estate planning attorney for advice specific to your situation.