As cryptocurrency becomes increasingly integrated into the mainstream, a growing percentage of the U.S. population is incorporating digital assets into their personal wealth portfolios. While these assets hold significant value, they are also distinct in the way they are stored, accessed, and managed. Traditional wills and trusts were not designed to address the complexities of digital currencies, making it essential for modern estate plans to evolve accordingly. To ensure a seamless transfer of wealth, estate planning must now account for the unique challenges posed by cryptocurrency.
What Sets Digital Currencies Apart
Cryptocurrency stands apart from traditional bank accounts, investment portfolios, and real estate due to its digital, decentralized, and inherently anonymous nature. Unlike bank accounts or brokerage assets, cryptocurrency isn’t held by a centralized institution that can be contacted to access funds after a death.
Ownership with cryptocurrency is tied directly to access, requiring knowledge of private keys or access credentials for recovery. In cases where access credentials aren’t passed on, these assets can be irretrievably lost. As a remedy, a well-structured estate plan must ensure that secure access is preserved without compromising security while the owner is alive.
Secure Documentation and Access Planning
To ensure proper transfer to heirs, proper documentation is essential. While it may feel counterintuitive to write down details of private holdings, estate planners should ensure there is a clear inventory of what holdings exist (e.g., coins, wallets, exchanges), where it is stored, and how it can be accessed (e.g., private keys, seed phrases, login credentials).
Access information must be stored securely by means of a password manager, USB, or third-party custodian. Should there be hard copies of private keys, they can and should be kept in a fireproof safe.
Most importantly, there must be clear instructions for executors or beneficiaries to access and transfer assets. Best practices for securing shared private keys or wallets are through a separate document in safekeeping that references cryptocurrency locations or a password manager software with legacy access features providing access upon proof of death. Such information should not be included directly in the text of the will or trust.
Risks and Challenges in Estate Planning with Cryptocurrency
Including cryptocurrency in a will or trust comes with inherent risks. One risk is loss of assets if private keys are lost, rendering them permanently inaccessible. Moreover, there is the issue of a lack of awareness among executors or heirs who may not understand how this digital asset works or may even be unaware that the decedent held such assets. Many professional executors and/or trust companies will not assist with cryptocurrency assets.
Another challenge is the volatility of value, where, unlike traditional assets, cryptocurrency can fluctuate drastically, complicating a distribution plan that may be outdated or inequitable by the time it is carried out.
Finally, there is a risk of disputes about who is entitled to the cryptocurrency if the will or trust is not clear about whether such an asset goes to a specific person or class of persons or instead to the residuary, which is the catch-all category for distribution.
Tax Implications of Inherited Cryptocurrency
For federal tax purposes, the IRS treats cryptocurrency as personal property pursuant to IRS Notice 2014-21. Upon inheritance, the asset is included in the decedent’s gross estate at its fair market value on the date of death. If the estate exceeds the federal estate tax exemption ($13.99 million in 2025 and set to increase to $15 million in 2026), it is subject to estate tax.
The executor or trustee will need to determine whether to use the fair market value as of the date of death or, instead, the alternative valuation date, which is six months after the date of death. If the cryptocurrency is a large part of the decedent’s wealth and the values between those two dates are substantially different, this could be an important decision that could help minimize the estate tax due.
Beneficiaries also receive a “stepped-up basis,” meaning capital gains tax applies only to the appreciation in value from the date of inheritance to the date of sale. Given this digital asset’s volatility, careful tracking and documentation are essential. It is important to know that the basis can also be “stepped-down” if the value as of the date of death (or alternate valuation date) is lower than when purchased.
Looking Ahead: Regulation and the Future of Digital Assets
The rise of cryptocurrency represents more than a new investment capital, but more so a new frontier like the wild west, lacking uniformity from state to state. With the normalization of cryptoassets, we can expect more regulations and integration into mainstream estate law and probate and trust administration processes in the future. It’s also expected there will be increased IRS scrutiny regarding cryptocurrency overall.
For investors, holders, and their families, planning for these digital assets requires care, precision, and foresight. Failure to account for cryptocurrency can result in significant wealth being lost forever. Therefore, don’t delay, review and update plans regularly, especially as investment holdings change, and choose an executor or trustee who understands the complexities of digital assets.
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Courtney Miller O’Mara is a Director in Fennemore’s Business Litigation group, based in the Reno office but handling matters throughout Nevada. Courtney’s practice focuses on business litigation as well as trusts and estates matters, including planning, administration, and litigation. Courtney can be reached at comara@fennemorelaw.com.
Austin Slaughter is an Associate in Fennemore’s Business Litigation practice group based in Reno, Nevada, whose legal career started with a clerkship under the Honorable Larry R. Kicks, where he mastered trial and motion practices in the US District Court for the District of Nevada. His experience ranges from complex commercial litigation, including contract disputes and employment law, to probate administration. Austin can be reached at aslaughter@fennemorelaw.com.