Including Cryptocurrency in Your Estate Plan


If you rely on Bitcoin or other cryptocurrencies as part of your investment portfolio, or even for transactions, you likely expect these digital assets will be a valuable part of your estate after you pass away. But technological issues unique to blockchain technology can interact with laws created long before the invention of cryptocurrency in ways you might not expect. Here’s what you need to know about including cryptocurrency in your estate plan.

What is Cryptocurrency?

Cryptocurrency is a digital asset that is decentralized across a large number of computers, making the assets difficult to access or counterfeit. Cryptocurrency companies rely on this decentralization to avoid regulations as financial institutions. This allows users to remain anonymous -- known to the company only by their private key, which gives them access to the digital ledger stored on their device, and on devices around the world.

Cryptocurrency as an Asset

Despite its name, cryptocurrency isn’t treated the same as your bank account, insurance benefits, or investment assets. Florida and federal law consider cryptocurrency personal property rather than currency. This affects the way it is treated -- and taxed -- after you die. Depending on how your private key is stored, and unless you specifically direct who should receive your Bitcoin, Etherium, or Litecoin account in your Will, it could pass to whomever is responsible for sorting through your clothing, collectibles, and other personal property items.

You can even affect the way cryptocurrency fits into your estate plan by how you store your private key. Your account will always be treated as a digital asset. However, that ledger can only be accessed with your private key:

  • If you store that key online (i.e. using a password management app), this “hot storage” will be considered intangible personal property, like a copyright, patent, or account receivable.
  • If you store the private key offline (i.e. on a USB device or hard drive), this “cold storage” is instead tangible personal property, the same as your books or shoes.

The transfer of your crypto account could also lead to capital gains or losses, particularly if the cryptocurrency is liquidated before transfer. Taxes on those transfers may pass to your beneficiaries along with your digital wallet. It is important to keep that designation in mind when including cryptocurrency in your estate plan.

Will Your Personal Representative Have Access to Your Digital Wallet?

One of the biggest challenges to using and trading cryptocurrency is remembering your password. Unlike your email or social media accounts, the private key to your account can’t be recovered if you lose it. This is a significant problem across the emerging industry. According to the New York Times, approximately 20 percent of the 18.5 million Bitcoin (worth around $140 billion as of January 2021) were in lost or stranded wallets. An entire industry has emerged to help Bitcoin billionaires remember or recover their lost keys before the digital wallets seize up and encrypt the contents permanently. Now imagine what happens to those private keys when they pass through a personal representative and on to a beneficiary less familiar with cryptocurrency.

If you have a valuable cryptocurrency account, it is essential that you select a fiduciary who will understand that value and take appropriate care to maintain and maximize your digital assets. Cryptocurrencies are extremely volatile. Unless your personal representative is paying close attention to the crypto markets, they could short-change your beneficiaries by thousands of dollars.

You and your estate planning attorney will also need to take care to ensure that your personal representative receives access to the private key in a way that doesn’t violate any cybersecurity laws. Accessing another person’s digital assets without their consent may be illegal. Your crypto estate planning documents will need to give your personal representative specific authority to log in as you and manage your digital assets.

Then there’s that private key again. You and your estate planning attorney should have a conversation about when and how that key will be transferred to the estate. If your personal representative knows your crypto accounts exist but doesn’t have the key, even a court order can’t give them access to the account. (Remember, cryptocurrencies don’t have password recovery systems.)

On the other hand, as soon as your fiduciary has access to the key, he or she will also have access to your account. To make sure they don’t get access too soon, some estate planners have gone so far as to set up elaborate guides, sending beneficiaries on a treasure hunt for parts of the key stored in different safes or safety deposit boxes.

Can a Trust Protect Your Cryptocurrency Assets?

One option to protect your crypto assets and ensure they are treated properly after your death is to put them into a revocable living trust. As the grantor who creates the trust, you will generally retain the authority to manage your assets -- including cryptocurrency assets -- while you are alive. After you pass, this authority transfers automatically to a trustee of your choice.

However, the trust will still need access to (or possession of) the private key. This raises similar concerns to any crypto Will you may have prepared. The use of a revocable trust does help to avoid some of the questions surrounding the authority of the person in possession of the private key to access your bitcoin after you pass away in order to administer the trust

At Harrison Estate Law, we don’t shy away from the complicated estate planning issues surrounding Bitcoin and other types of cryptocurrency. We ensure all our estate plans, including Wills and trusts, account for our clients’ digital assets, and make sure they will be well-managed after the person’s death. We are happy to help you set up a new cryptocurrency estate plan or update your existing plan to account for your digital currency. Please contact us online or via email or call 352-559-9828 to schedule a free consultation. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call.