Suggestions for Conquering Cryptocurrency When Estate Planning

By Anabelle Nietupski, Web Editor 

Photo courtesy of unsplash

Recently, it has become difficult to listen to a news broadcast without hearing the word “cryptocurrency.” It is estimated that “10% of people in the United States now own some form of cryptocurrency.”[1] A relatively modern invention, cryptocurrency can be defined as “a digital currency in which transactions are verified and records are maintained by a decentralized system using cryptography, also known as blockchain technology, rather than by a centralized authority (i.e., a sovereign government).”[2] This alternative to traditional national currency has been attracting investors and confusing those out of the modern stock market zeitgeist. It is likely that cryptocurrency will utterly disrupt the legal field in the coming years, making business transactions and estate planning more complicated for those unaware of the ramifications of this new currency. 

Looking specifically to the world of estate planning, cryptocurrency will be of utmost importance as crypto-assets “can hold significant family wealth,” while also presenting “complex challenges to securing, transferring, protecting and gifting that wealth.”[3] A 2020 survey performed by the Cremation Institute “revealed that only 23% of 1,150 cryptocurrency owners who responded reported having a documented plan for passing on their crypto-assets in case of their death.”[4] Seasoned investors will likely be prepared to formalize a plan for such assets through their estate plan.[5] Thus, it’s the average or first-time investor, likely only holding a small amount of cryptocurrency, who must be educated on how to represent such assets in their estate documents to avoid losing them.[6]

Suggestion #1: Cleary Document Crypto-Assets.  

Cryptocurrency can be accessed only “through a private key, usually a series of alphanumeric characters known only to the asset’s owner and stored in a digital wallet or in cold storage.”[7]  The term “cold storage” refers to “offline storage devices such as a USB drive, computer, phone, or tablet that are not connected to the internet.”[8] As there is no personal identifying information associated with the assets or “cloud” storage, they will be lost following the holder’s death unless the executor has access to the private key.[9] Thus, the first step when considering cryptocurrency in an estate plan should be to clearly “document their ownership of cryptocurrencies as part of their net worth statement and provide a document to their chosen fiduciary about how to access those assets” following their death.[10]

Suggestion #2: Pass to Someone Who Understands Cryptocurrency. 

Another suggestion to simplify the passage of crypto-assets is to consider the level of knowledge the heir has with using and managing cryptocurrencies. It may even be prudent to expressly select a special trustee to solely manage the assets held in cryptocurrencies.[11]

Suggestion #3: Plan for Potential Appreciation. 

Appreciation is always the goal when investing in cryptocurrency, but there are certain circumstances in which it may be anticipated and accommodated while estate planning. For example, when investing in a “newly circulated coin with a low current value,” it may be wise to transfer the assets through an inter vivos gift when the inherent value of the currency is low.[12] This will allow heirs to avoid paying higher tax rates when the currency ultimately rises in value.

The IRS considers cryptocurrency to be property for federal tax purposes, thus the assets are susceptible to “federal gift and estate tax rules governing property transfers.”[13] As a result, inter vivos gifts of cryptocurrencies must be considered when calculating yearly federal exemption. When making such gifts, “some best practices … include obtaining an appraisal to establish the fair market value of the cryptocurrency being gifted and executing a separate memorandum that includes details of the gift, such as the date of the transfer, the donor’s basis in the gift, and the fair market value of the gift at the time of the transfer.”[14]Additionally, an annual review of crypto-assets can help keep estate plans current with the eb-and-flow of cryptocurrency value.[15]

These suggestions merely scratch the surface of planning for the allocation of digital assets. Cryptocurrency may appear to be a roadblock in the way of estate planning, but by staying informed and preparing for potential changes, a prudent lawyer should be able to aid their clients through the challenge without issue. 


[2] Id.



[5] I

[6] Id. 

[7] Id. 




[11] Id.

[12] Id. 



[15] Id.

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