Cryptocurrencies: An Estate Planning Conundrum

The rise of bitcoin as well as other virtual currencies associated with blockchain technology (known as cryptocurrencies) has created a number of new millionaires and raises new questions in the legal community when it comes to addressing cryptocurrencies in estate plans.

The Internal Revenue Service classifies cryptocurrencies as property for tax purposes, so owners of cryptocurrency may stipulate the disposition of their cryptocurrencies in their estate planning documents. However, the difficulty lies in determining how to enable the transfer of cryptocurrencies after the testator’s death without putting the security of the cryptocurrency holdings at risk during that person’s lifetime.

Cryptocurrencies are effectively bearer instruments that are accounted for in “wallets” on a decentralized blockchain. A cryptocurrency wallet is a software program that stores access credentials and interacts with blockchains to enable users to send and receive virtual currencies and monitor balances. Therefore, whoever knows a wallet’s access credentials (the private key) has access to the cryptocurrency in the wallet and can transfer the cryptocurrency to themselves. However, if no one knows a wallet’s access credentials, its contents are permanently lost, so it would be unable to be accessed by heirs after the wallet owner’s death.

This is exactly what happened in 2018 after a major cryptocurrency investor died unexpectedly on a trip abroad. He left an estimated $500 million worth of cryptocurrency to his heirs but had not passed on the private keys for his wallets before his death. Unless someone can find the private keys, the heirs will never be able to get the fortune they inherited.

This is the central issue of the cryptocurrency estate planning conundrum: If you share your private keys with someone, they can quickly and easily take your funds from you at any time; if you share your private keys with no one, access to your cryptocurrency is lost when you become disabled or die.

Best practices for protecting against the loss of your cryptocurrency include the following:

  • Make sure to include detailed information to your will and/or revocable trust that lists the type and quantity of each cryptocurrency that you own, how these cryptocurrencies are stored, and the location of the access credentials.
  • However, avoid including the access credentials in your will or revocable trust
  • Write a side letter to your executor and/or trustee detailing the steps necessary to access and distribute your cryptocurrency holdings
  • Store a copy of the access credentials in a safe place that can be accessed following your disability or death (For example, you could use a “password manager” on your computer or cell phone, or a home safe. In either case, make sure someone you trust has access to your master password or safe.)

For more advice about including cryptocurrencies in your estate plan, contact us at Wilson and Wilson Estate Planning and Elder Law, LLC, 708-482-7090 or