The popularity of cryptocurrency has exploded in recent months, with its market cap peaking at $3 trillion in 2021. For those who have invested in cryptocurrency, this novel asset can represent a confusing but potentially exciting new world, where government regulation and industry best practices are either nonexistent or struggling to keep up. But even if crypto is a novel investment for you, it’s important to think long-term — and that includes preparing for what should happen to your crypto when you pass away.
Cryptocurrency, or crypto, is a form of digital currency. Instead of being managed by a centralized authority (like a bank), crypto transactions live on an immutable public ledger called a blockchain and are independently verified by a network of computers.
Because crypto assets are decentralized, it’s extremely important that you include them in your estate plan, and choose someone you trust to execute that plan. Otherwise, it may be impossible for your beneficiaries to secure access to them when you pass away.
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Why should you include crypto in your estate plan?
Like your real estate property and other possessions you own in your name, crypto is considered a probate asset. This means that it has to go through probate (the legal and court-driven process of distributing your estate) before it can be legally transferred to your beneficiaries after you die. Having an estate plan generally makes the probate process quicker and easier for everyone involved.
Also, note that even the most popular crypto exchanges don’t currently support any type of beneficiary designation for crypto assets — such as transfer on death (TOD) or payable on death (POD) accounts — which are common ways to keep traditional assets out of probate.
In addition, because of its decentralized nature, crypto has some unique safety concerns that aren’t an issue with assets managed by a centralized authority (like bank or investment accounts). Even though crypto is a digital currency, you should treat it like a physical asset with value, akin to diamonds, precious metals or cash. Anyone who gains access to your crypto can use it — for better or for worse. Conversely, if you die without giving someone access to your crypto keys — the strings of randomly generated numbers and letters that serve as your crypto “passwords” — your crypto is likely gone forever, locked in a digital wallet that can’t be accessed.
Because of this, it’s imperative you make a plan for your crypto assets and leave clear instructions for the people you want to inherit them.
Best practices for passing on your crypto assets
1. Name a beneficiary for your crypto assets in your estate plan.
A beneficiary is the person or organization you want to inherit an asset when you die. Make sure to list all your crypto assets in your estate plan, where they’re stored, and which beneficiaries should receive them.
In addition to naming beneficiaries for your crypto assets in your will, you should also name an executor: the person you appoint to administer your last will and testament. You could also name a separate digital executor and task them with protecting and preserving your digital assets and digital property. To make the process easier for everyone involved, consider nominating an executor or digital executor who is familiar with crypto. (
If you plan to name co-executors in your will, consider choosing individuals who get along and work well together, and delineate their responsibilities clearly in your will so there isn’t any confusion.
As new laws and regulations transform the landscape, revisit your estate plan frequently to ensure that your nominated executor is well-equipped to access and oversee your crypto investments and facilitate their transfer to your chosen beneficiaries without unnecessary cost and delay.
2. If you own large amounts of crypto, consider establishing and funding an irrevocable trust.
If your estate is valued above a certain threshold, it could be subject to estate tax when you die. The current federal estate tax exemption is $12.06 million for individuals and $24.12 million for married couples. A handful of states also impose a state-level estate tax (the lowest threshold being in Oregon and Massachusetts, currently at $1 million).
If you own enough crypto that your estate could be subject to estate tax, you may want to consider establishing an irrevocable trust. A properly structured irrevocable trust can remove these valuable assets from your taxable estate. However, as a general rule, the crypto you transfer to an irrevocable trust during your lifetime won’t receive a basis adjustment (or step-up in basis) when you die.
3. Understand and document where your crypto is stored.
How your executor and beneficiaries will retrieve your crypto after you die depends on how you store it.
If your crypto is stored in a custodial account on a crypto exchange like Coinbase, Gemini or eToro, your executor or beneficiaries can contact these exchanges directly to facilitate the transfer of your assets. To start this process, they will need to provide your death certificate, probate documents (such as a copy of your will), proof of identification, and a letter signed by the executor instructing what to do with the crypto in the account.
If your crypto is stored offline in a cold wallet (a physical storage device that often looks like a USB drive), posthumous access will depend on how well you document your assets. Here are some generally accepted best practices:
- Document the location of the wallet itself (ideally stored in a fireproof safe or safe deposit box).
- Document your private and public keys for each wallet you own. Both are needed to access your crypto. Keep both keys in secure but separate locations.
- Document any other information that may be needed to access your wallet, like a PIN code or recovery phrase.
Where you ultimately store this information is up to you. You may consider keeping it in a safe deposit box, listing it in your estate plan, or entrusting it to an attorney, family member or friend.
Even though the crypto landscape is evolving rapidly, having an estate plan is critical to protecting your crypto assets when you die. Because of the decentralized nature of crypto, the onus is on you to keep stock of your investments and communicate access instructions to your executor and beneficiaries in the event you pass away.
Having an up-to-date estate plan is important for everyone, but it can be especially critical for crypto owners who don’t want their loved ones to lose access to their crypto assets.
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