As cryptocurrency ownership surges across the United States, a pressing concern is emerging for investors: ensuring their digital assets can be passed on to heirs without getting lost in the complexities of estate planning. According to the National Association of Unclaimed Property Administrators, roughly 1 in 7 people are leaving unclaimed property behind, and with estimates from Gallup and Pew Research indicating that 14% to 17% of U.S. adults have owned cryptocurrency in recent years, the risk of forfeiting crypto holdings is becoming a significant issue.
Azriel Baer, a partner in the estate planning and administration group at law firm Farrell Fritz, highlighted the unique challenges posed by digital assets. "Leaving property or mutual funds behind in a will is pretty cut and dried, but with more and more assets placed in cryptocurrency, a large share of inherited assets are in danger of forfeiture," Baer said in a recent analysis published by CNBC.
The problem is compounded by the fact that many crypto investors overlook updating their estate plans to include provisions for digital currencies. A survey from Caring.com revealed that only 24% of Americans have a will outlining how their money and estate should be managed after death, and nearly one in four of those individuals haven't revised their wills since they were first drafted, sometimes decades ago.
Patrick D. Owens, a shareholder at Buchalter and a member of the firm's tax, benefits, and estate planning practice group, emphasized the pitfalls of outdated documents. "It's very common for people not to update their estate planning documents for 10, 20 years or sometimes longer. If that's the case, you're behind," Owens told CNBC. Without specific language addressing digital assets, heirs may need to seek court approval to access cryptocurrency, a process that Owens described as "a hassle" involving significant time and expense.
While a standard will suffices for many, experts like Baer recommend incorporating a revocable living trust to streamline the transfer of assets, including crypto. This approach offers greater privacy and avoids the delays of probate, which can take six to eight months or longer. Baer advises transferring cryptocurrency into such a trust, allowing the trustee immediate access upon the owner's death. For instance, if crypto prices are plummeting, heirs could sell assets promptly rather than waiting out probate proceedings.
To complement a revocable trust, attorneys often pair it with a pour-over will, which funnels any overlooked assets into the trust for distribution. This setup is particularly crucial in the volatile world of cryptocurrency, where timing can mean the difference between preserving or losing value.
Beyond legal structures, simply informing heirs about access to crypto holdings is vital, though revealing the full extent of one's wealth isn't necessary. Baer recounted a case he handled where tens of millions of dollars in cryptocurrency were inaccessible to heirs because they lacked the private keys—digital passwords that prove ownership and grant access to blockchain-based funds.
To prevent such losses, Baer suggests secure methods for sharing access instructions, such as storing them in a safe deposit box, at home, with a lawyer, or through specialized crypto inheritance services. Importantly, he warns against including private keys in a will, as these documents become public record during probate.
Selecting the right person to manage crypto assets adds another layer of complexity. Not everyone is equipped to handle the intricacies of digital currencies, including their volatility and transaction processes. Baer noted that the recent fluctuations in bitcoin prices underscore this risk: "If you name someone who needs weeks to get up to speed on how to transact with bitcoin, the financial losses could be meaningful." He added, "Uncle Bob may be a great person, but he may have more challenges transacting with an asset class he's totally not familiar with."
Even institutional trustees may shy away from crypto responsibilities. Owens shared an example of a client who passed away with half a million dollars in bitcoin and ether; the primary trustee refused to manage the digital assets, necessitating the appointment of a special trustee. In that instance, a nephew stepped in, but Owens pointed out that finding a suitable replacement can be both time-consuming and costly.
Tax implications further complicate estate planning for crypto holders with substantial portfolios. Jonathan Forster, a shareholder at law firm Weinstock Manion, explained that large holdings could trigger significant income or estate taxes. The federal estate tax exemption for 2025 stands at $13.99 million per individual, though some states impose their own estate taxes.
Forster described strategies used by clients with crypto valued over $50 million, such as forming a limited liability company to hold the assets, then gifting interests in the LLC to an irrevocable trust for the benefit of minor children under an independent trustee. This method helps reduce the taxable estate while providing for family members efficiently.
Another common oversight is failing to track the cost basis of cryptocurrency investments, which is essential for gifting or inheritance. Baer stressed, "It can be onerous to keep track of basis, but it's important." Without accurate records, recipients may face difficulties accounting for the assets if they sell them later, potentially leading to tax complications.
The rise of cryptocurrency exchange-traded funds (ETFs) offers some relief from these estate planning headaches. Since the Securities and Exchange Commission approved the first spot bitcoin ETFs in 2024, such as the iShares Bitcoin Trust (IBIT), followed shortly by ethereum ETFs like the Fidelity Ethereum Fund ETF (FETH), investors can gain exposure to crypto without direct ownership. This reduces the risk of lost private keys or access issues, as ETFs function more like traditional securities.
Despite these innovations, the broader adoption of cryptocurrency—fueled by increasing mainstream acceptance—means estate planning remains a critical area for vigilance. As values continue to climb, the stakes for proper preparation grow higher, potentially affecting families nationwide. Experts like Baer, Owens, and Forster urge crypto owners to consult professionals now, rather than leaving heirs to navigate uncharted digital territory later.
Looking ahead, with crypto ownership projected to expand, policymakers and financial institutions may need to adapt further. Services dedicated to crypto inheritance are proliferating, and legal frameworks could evolve to better accommodate digital assets. For now, though, the onus falls on individuals to safeguard their legacies in this evolving financial landscape.