How to Make Sure Your Heirs Can Access Your Crypto

Don't forget to include your digital assets when doing your estate planning

When people invest in cryptocurrencies, they’re usually dreaming of future riches and financial freedom. The last thing on their minds is what will become of those digital assets when they die.

But since none of us will live forever, the fate of your crypto after your demise is a subject you need to address.

Crypto is unlike other assets like stocks or real estate. And it’s still so new that passing it down to heirs is rarely as straightforward.

So having a will probably won’t be enough. One big pitfall is that owning crypto typically means having various levels of security to protect it from would-be thieves. That means your heirs could find themselves in legal possession of assets they can’t access – in some cases permanently.

It’s common for people who own crypto to give very little consideration to these issues and more. In fact, many crypto owners overlook it entirely when doing their estate planning.

That’s why it’s a good idea to think about steps you can take now to ensure that those who you wish to inherit your crypto assets are both aware of them and will be able to access them when you’re gone.

Here are the things you should keep in mind…

Don’t Keep Your Heirs in the Dark

Amazingly, one of the biggest issues to passing on crypto assets is that many heirs don’t even know the assets exist. And many crypto owners make matters worse by leaving their digital assets out of their estate planning altogether.

“For some reason, they think of it as separate from their estate,” estate planning and business attorney Laura Cowen told Barron’s. “The biggest risk with crypto isn’t so much someone stealing it or going to the wrong family member. It’s more just that families don’t know that their loved one owned it.”

So tell your heirs about your crypto. Please.

But just knowing about it isn’t enough. You also need to provide information on where you store your crypto and how to access it.

Hand Over the (Private) Keys

People can invest and hold crypto in a variety of ways. Some of those are easier to pass on to heirs than others.

It is possible to get exposure to crypto using conventional means – the stock market. If you own crypto via an ETF or though shares in a crypto company such as Coinbase (COIN) or Circle (CRCL), your crypto will get passed on with your other investments. No worries!

But many crypto owners hold actual cryptocurrencies. While there are several ways to store your crypto, they all require some sort of passcode for access. So it’s critical that you leave behind instructions telling your heirs not just where you keep your crypto, but the passcodes required to access them.

That said, there are some nuances depending upon the storage method:

· At an exchange: Keeping crypto at an exchange like Coinbase or Kraken is easy, with the trade-off being that someone else controls your crypto. But crypto exchanges, unlike the brokerages where you trade your stocks, do not offer a way to name beneficiaries.

That means your heirs not only need your username and password, but possibly two-factor authentication (2FA) if you have it enabled. The 2FA codes are typically sent to your smartphone. If the phone is gone, or if your heirs can’t unlock it, they won’t be able to access your account. That means you’ll also have to provide the passcode for your phone as well as the name of the 2FA app, such as Google Authenticator, you use to access that site.

One bright spot: The exchanges do allow heirs to claim a deceased loved one’s account if they can provide the death certificate and other documentation as listed on their websites.

· In a smartphone wallet: Here access to the phone is key. Without your phone and the passcode to unlock it, those assets will be lost. In addition to the wallet password, your heirs need to know the assets are on your phone and the name of the wallet app.

· In a PC wallet: On a PC, you can have crypto in a browser-based wallet or in a standalone app. As with a phone wallet, you need to make sure your heirs know the location of your PC as well as its password. If it’s browser-based wallet, make sure they know what the icon looks like. If you keep crypto in a wallet app such as Exodus, you just need to provide the name of the wallet and the password.

· In a hardware (cold) wallet: If you have crypto in a hardware wallet device, such as a Trezor, it’s even more important to provide its location. Hardware wallets are often small, often not much bigger than a thumb drive, and so are easy to lose. They’ll also need access to your PC or smartphone, since most hardware wallets connect to another primary device with USB or Bluetooth.

Of course, once your heirs gain access to your crypto, it raises the issue of what they’ll do with it. If they’re crypto-savvy, they’ll be fine. But if your heirs really don’t know much about crypto, you should think about leaving some instructions on how to move and sell your crypto, or at least point them to places online where they can learn how to do it.

If you’re worried about your heirs struggling with the technical aspects of gaining control of your crypto, appoint a crypto-savvy person as executor.

Switch to a Custodial Service

People who own actual cryptocurrencies (as opposed to an ETF or stock play) have another option for storage – a third-party custody service.

These companies store your crypto for a fee.

Custodians, like the exchanges, generally don’t allow you to name a beneficiary but do provide a way for heirs to claim the assets in your account. The advantage is that custodians tend to offer superior security to the exchanges (or what individuals can achieve with self-custody).

Examples of crypto custodians include Anchorage Digital, Fidelity, Gemini, and Coinbase (as part of its Coinbase Prime platform).

Where There’s a Will There’s a Way

Throughout this article I’ve assumed you’ve made (or are planning to make very soon) a will.

It’s worth mentioning because dying without a will makes the process of gaining legal ownership over any asset that doesn’t have named beneficiaries – which, as we’ve seen, includes crypto – more prolonged and difficult.

Your state of residence will get involved to determine who’s eligible to inherit your assets. Then the assets will be distributed according to your state’s intestate laws.

Settling an estate without a will can take from six months to several years. The more complex the estate, the longer it takes to settle – and owning crypto will most certainly add to your estate’s complexity.

What About Taxes?

If you’ve owned crypto for any length of time you may be sitting on huge gains. And if you’ve sold any of your crypto at a profit, you’ve probably paid substantial capital gains taxes.

It’s only natural to wonder if your heirs will get stuck with a massive tax bill.

Good news: They won’t, unless you’re a crypto whale worth many millions of dollars.

The IRS treats crypto as property, which makes it subject to the same rules as assets like stocks. So the crypto your beneficiaries inherit will enjoy the “step-up in basis” provision. That means their cost basis is not what you paid for the crypto, but the value of the crypto on the date that you die.

Since capital gains tax is paid on the difference between the cost basis and the price you sell, your heirs could end up with a substantial windfall with minimal taxes owed.

Let’s say you bought two Bitcoins in 2020 for $10,000 each. So $20,000 is your cost basis. On the day you die, one BTC is worth $200,000. If you were to sell it at that price, you’d owe capital gains taxes on the $380,000 gain.

But you don’t sell. So your heirs not only inherit $400,000 worth of Bitcoin, but that amount is now their new cost basis. If they sell it immediately, they’ll owe zero capital gains.

If they hold on to it and sell when Bitcoin hits $250,000, they’d owe capital gains on just the $100,000 gain since they inherited it – not the $480,000 gain you would have had.

Now back to the crypto whale issue.

If an entire estate (not just crypto, but all assets in an estate combined) exceeds a certain threshold, the amount above that threshold is subject to a 40% federal estate tax. The threshold increases every year. In 2022 it was $12,060,000; for the 2025 tax year it’s $13,990,000.

If your estate is less than that, you don’t need to worry about the IRS.

But wait! You may still owe an inheritance or estate tax to your state of residence.

Twelve states and the District of Columbia impose an estate tax, while six states levy an inheritance tax. Maryland, where I live, actually imposes both (!).

If you want to know what your state does, the Tax Foundation has all the gory details.