The popularity of cryptocurrency has exploded in recent months, with its market cap peaking at $3 trillion in 2021 (opens in new tab). 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.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
FAQs
2. Name a beneficiary for your crypto assets. If you own crypto assets, you need to choose who should inherit them. As with other assets, like your house or bank account, you'll do this by naming a beneficiary in your will or trust who should receive your crypto after you die.
How do you pass crypto as inheritance? ›
You can transfer ownership of your cryptocurrency to a Trust just as you would with any other type of asset. Don't forget to provide the trustee with the passcode or keys necessary to access and manage your cryptocurrency account on your behalf.
What happens to Coinbase account if you die? ›
Typically, naming a beneficiary on your Coinbase account would be done with your estate planning attorney. Like most other assets, the ownership of your Coinbase account would be transferred according to your will or other arrangements made with your legal counsel.
Do you pay inheritance tax on cryptocurrency? ›
Is cryptocurrency considered 'property' for Inheritance Tax purposes? The short answer is yes – HMRC considers cryptocurrency as property for Inheritance Tax (IHT) purposes.
Can you leave crypto currency in a will? ›
Anyone that wants to include cryptocurrency in their will or trust must ensure the executor has information such as: Information about the digital wallets and the amount they contain. A memorandum to the will that contains security and access information such as PINs and passwords.
Does crypto have to go through probate? ›
By transferring your crypto assets into a Trust, they will not be subject to probate if you were to pass away. Your appointed Trustee should be provided concise instructions for how to access your cryptocurrency so that it can be distributed to your beneficiaries.
How can I get custody of my crypto? ›
Here's how to self-custody your crypto.
- Step 1: Create a self-custody wallet. Download BitPay Wallet for free. ...
- Step 2: Record your new wallet address (or addresses) You'll need to know your wallet's address. ...
- Step 3: Initiate the transfer from your custodial account. ...
- Step 4: Enjoy the new control of a self-custody wallet.
Cryptocurrencies are assets, so they're subject to probate just like anything else. If there is a will, when a person dies, their cryptocurrency is passed on to their designated beneficiaries. If the beneficiary is not specified, the cryptocurrency is passed on to the estate of the deceased.
Is it safe to leave assets in Coinbase? ›
To uphold this mission, Coinbase takes extensive security measures to ensure your digital assets remain as safe as possible, including strategically storing a vast majority of assets offline in secure, guarded cold storage facilities.
How do I retrieve Bitcoins when someone dies? ›
Bitcoin and all other cryptocurrencies are decentralized, meaning they weren't issued by a central bank or authority. That makes it impossible for anyone to help access a loved one's account when they die, unless they possess the security key (password) and/or seed phrase to unlock their wallet.
Your funds go into escheatment when the owner has made no contact or activity generated for a period of time designated by state law, typically 3-5 years. At this point, they are considered unclaimed or abandoned property.
How much crypto Do I have to have to pay taxes? ›
A Form 1099-K might be issued if you're transacting more than $20,000 in payments and 200 transactions a year. But both conditions have to be met, and many people may not be using Bitcoin or other cryptocurrencies 200 times in a year. Whether you cross these thresholds or not, however, you still owe tax on any gains.
Where do you not pay tax on cryptocurrency? ›
For both crypto businesses and individual investors, the Cayman Islands is a crypto tax haven. The Cayman Islands Monetary Authority imposes no Corporate Tax on businesses and no Income Tax nor Capital Gains Tax on residents.
How much are crypto assets taxed? ›
Short-term crypto gains on purchases held for less than a year are subject to the same tax rates you pay on all other income: 10% to 37% for the 2022-2023 tax filing season, depending on your federal income tax bracket.
Can banks hold crypto assets? ›
BIS has released its Prudential Treatment of Crypto Asset exposure report for December 2022. From Jan 1 2025, banks can hold 2% of their reserves in cryptocurrencies. The report warns banks that non-compliance of AML or CFT laws can cause operational losses.
Why you shouldn't keep your crypto in an exchange? ›
A private key is simply a complex form of cryptography that allows users to access their cryptocurrency. If you leave your cryptocurrency on an exchange, the private keys to your coins are with the exchange and your coins could be stolen in a hack.
Does real estate take crypto? ›
Not all sellers accept cryptocurrency.
While trust is growing in Bitcoin, Ethereum and their competitors, few sellers are ready to go all-in and accept cryptocurrency as payment for a real estate transaction, so it may limit your home-buying options.
How do you avoid probate on investments? ›
Beneficiary designations: Designating beneficiaries on RRSPs, registered retirement income funds, tax-free savings accounts, life insurance policies and pension plans prevents these assets from passing through your estate and thus avoids probate fees on them.
Are crypto assets considered property? ›
Courts have struggled with whether cryptoassets can be classified as 'property' in the traditional legal sense, but generally appear to have accepted it is a form of property.
Can my wife take half my crypto? ›
No matter which spouse invested in the crypto, if it was acquired during the marriage, it will be considered marital property subject to equitable division between the spouses.
The annual fee for storing your cryptocurrency in Custody is . 40% (40bps) with an additional fee of $125 per withdrawal.
Does Coinbase custody crypto? ›
Coinbase.com stores your crypto for you after you buy it. You do not need a Coinbase.com account to use Coinbase Wallet. Coinbase Wallet is a self-custody wallet. The private keys (that represent ownership of the crypto) are stored directly on your device and not within a centralized exchange like Coinbase.com.
Can you write off crypto assets? ›
The IRS requires that you report all sales of crypto, as it considers cryptocurrencies property. You can use crypto losses to offset capital gains (including future capital gains if there is applicable carryover) and/or to deduct up to $3,000 from your income.
Where is the safest place to store crypto? ›
Those interested in the safest storage should consider using a non-custodial cold hardware wallet for all of their long-term bitcoin and cryptocurrency storage. Only keep what you plan to use in your hot wallet. Once you're done with your transaction, move your crypto back to cold storage.
Should I keep my money in Coinbase or wallet? ›
If you want to buy and sell your crypto, Coinbase will be the best choice. Why use Coinbase Wallet? If you're looking for a secure wallet for your digital assets, Coinbase Wallet will be your best bet.
Should you keep all your crypto in Coinbase? ›
Yes, storing assets in a custodial wallet comes with some risk, but Coinbase has a fairly strong balance sheet and it has historically been quite profitable. Additionally, the company has invested heavily in cybersecurity, and it has never lost customer funds because of a breach.
Do I have to report Bitcoin if I lost money? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
How do I find out if a deceased person has cryptocurrency? ›
Generally speaking, you want to see if you can find evidence of crypto accounts first. Then, once you believe there are accounts, call your local probate court and ask them how to proceed.
Which cryptocurrency owner died? ›
When Quadriga CEO Gerald Cotten died suddenly in 2018, the passcodes for his cryptocurrency exchange died with him. His clients were locked out of about $250 million, and investigators later found widespread fraud. Matt Galloway talks to his widow, Jennifer Robertson, about what she did and didn't know.
Can you recover money lost in crypto? ›
While individuals have come to trust several crypto wallets and exchanges in order to carry out transactions securely, if your crypto assets are lost, hacked or stolen, there is usually no way to recover your funds.
You can safely store crypto on Coinbase so you don't have to worry about managing your own private keys.
How do I get all my money out of Coinbase? ›
From a web browser, select your cash balance under Assets. On the Cash out tab, enter the amount you want to cash out and then click Continue. Choose your cash out destination and then click Continue. Click Cash out now to complete your transfer.
How do I set up a beneficiary on Coinbase? ›
Naming a beneficiary In Coinbase
Coinbase account can be transferred to your beneficiaries according to the specifications stated in your Will or other legal documents, but naming a beneficiary in the Coinbase account itself is not possible for now.
Who can custody crypto? ›
While anyone can hold funds in wallets, crypto custody systems are primarily for institutional investors. Crypto custodians offer the highest level of security by combining hot, warm, and cold wallets (don't worry – we'll discuss these different wallets later).
Can you buy crypto on behalf of someone else? ›
The blockchain proves ownership of cryptocurrency, but there are no ties from the wallet holder to the legal holder, i.e., this wallet is owned by Sam. Don't hold cryptocurrency on behalf of others. There are minimal reasons why you should keep cryptocurrency on behalf of another person.
How do I move my money from Coinbase? ›
From a web browser, select your cash balance under Assets. On the Cash out tab, enter the amount you want to cash out and then click Continue. Choose your cash out destination and then click Continue. Click Cash out now to complete your transfer.
Can I put my Coinbase account in a trust? ›
Coinbase supports accounts in the name of a trust through our business platforms Coinbase Prime, Coinbase Custody, and Coinbase Exchange.
Will kin be added to Coinbase? ›
Support for KIN is immediately available.
Can government seize crypto assets? ›
After meeting probable-cause and burden-of-proof requirements, law enforcement can get seizure warrants for any illicit funds that eventually land on compliant exchanges—and many funds eventually do.
Can government track crypto assets? ›
Yes, the government (and anyone else) can track Bitcoin and Bitcoin transactions. All transactions are stored permanently on a public ledger, available to anyone. All the government needs to do is link you to your wallet or transaction.
Short-term crypto gains on purchases held for less than a year are subject to the same tax rates you pay on all other income: 10% to 37% for the 2022-2023 tax filing season, depending on your federal income tax bracket.
Is transferring crypto to another person a taxable event? ›
Unlike wallet-to-wallet transfers, crypto-to-crypto transactions are considered taxable. Because you are disposing of cryptocurrency in a crypto-to-crypto trade, you will incur a capital gain or loss depending on how the value of your coins has changed since you originally received them.
How do I transfer ownership of crypto? ›
Each owner transfers bitcoin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.
