Estate Planning with Bitcoin

In News by Michael Mangini

As Bitcoin surges to new highs and gains widespread credibility, a host of new legal issues are arising. As always, foremost on our mind is estate planning.

What is Cryptocurrency?

Cryptocurrency like Bitcoin is a digital currency that you can only access via a smartphone or computer. Individuals can buy and transfer crypto through a network that tracks transactions on a digital public ledger, using complex algorithms.

Even though some Bitcoin speculators believe it will replace conventional fiat currency, like the U.S. Dollar, the IRS’s current position is that cryptocurrency is property, and not currency, for tax purposes. Thus, tax principles of property transactions apply to transactions using virtual currency.

That means, when creating an estate plan, it’s important to understand that transferring cryptocurrency can result in taxable gains. Unlike stock, however, cryptocurrency does not pay dividends, and unlike bonds, cryptocurrency does not accrue interest. Rather, crypto increases or decreases in value, like real estate. 

Now that we have a clear handle on what crypto is and how it’s treated, let’s look at two unique hurdles to estate planning with cryptocurrency.


The Wall Street Journal has estimated that as much as 20% of all Bitcoin is permanently lost due to misplacement or death. Most notably, Mathew Mellon, heir to the Mellon Bank fortune, died without leaving access to $500 million in cryptocurrency.

Of course, one of the biggest drawbacks to having your wealth tied up in virtual assets is that it remains hidden from plain sight of your heirs. Unlike a home, jewelry or art, this valuable asset is intangible and untraceable.

Moreover, unlike an IRAs or a pension, Bitcoin owners cannot designate a beneficiary to their digital “wallets” or accounts on the major currency exchanges.  This is the unavoidable downside to anonymous ownership, which is also one of the more attractive features of cryptocurrency. Today, most Bitcoin is held in wallets with a private “key”, known only to the owner. Consequently, when the owner dies, the currency basically vanishes.

Therefore, it is imperative for those who own a large amount of virtual assets to create a Last Will and Testament or Trust. The instruments should identify your crypto holdings with some specificity, so as to alert executors, trustees, or beneficiaries to the asset’s existence.

But as discussed below, there is a fine line between making the assets discoverable and openly accessible.


While it’s a good idea to alert fiduciaries and beneficiaries to virtual assets in your Will, it’s not such a good idea to include passcodes, private keys, or even wallet addresses in a Will. A Will usually becomes a public document.

Further, most people don’t like the alternative of disclosing digital keys to others while they’re alive- even trusted family.

Herein lies the biggest hurdle to estate planning with cryptocurrency.

Fortunately, properly drafted estate planning documents can permit executors to access a decedent’s laptops and cell phones, which would have information about virtual assets owned by the decedent. There are other ways to ensure that even if the testator does provide their designated executor with keys or passcodes during her lifetime, the executor’s use of the passcode without proper triggering events and permissions in the estate planning documents could cause the executor to violate federal or state privacy laws.

So far, we’ve seen some fairly creative solutions to the accessibility hurdle. Some Bitcoin owners have designated multiple “keyholders” who can only access a wallet when they unite. This decentralizes the power that any one fiduciary can have over your accounts. It’s hardly foolproof, but startups like Casa Covenant are making this a reality. (But, as Casa Covenant states on its website, its service is not a substitute for a valid estate plan complying with your local laws).

Looking Forward

Estate planning for cryptocurrency is in its infancy stages. We would expect that, as cryptocurrencies become normalized, Congress and the States will pass legislation dealing with the taxation and estate planning aspects. In the meantime, it’s best to consult with tech-savvy Estate Planning counsel, who are forward-thinking and abreast of new developments.

The estate planning attorneys at Velella & Basso have years of experience advising clients on how to provide for family. Contact us today to discuss your options.

The information on this website is not legal advice. It is for information purposes only. No user of this site should act or refrain on the basis of this information without seeking legal counsel. This website does not create an attorney-client relationship. Photo credit: Shutterstock photo ID: 753353743