What Happens to Your Crypto When You Die

Zac McClure
ByZac McClure, MBAReviewed byAlex MilesUpdated on May 22, 2024 · minute read
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  • Proper planning is essential to ensure your cryptocurrency is accessible to beneficiaries after your death. You should also know the tax consequences of leaving crypto in your will and what your inheritors can expect.

  • Keep private keys secure and share access instructions with key parties such as an estate lawyer or executor to prevent the loss of digital assets. If you leave behind a wallet nobody can access, any crypto stored there will be lost, even if you’ve left it to them in your will.

What are crypto assets?

Cryptocurrency, often referred to simply as crypto, is a digital asset that uses blockchain technology to record and verify transactions. Unlike traditional currency, crypto is decentralized and not issued or regulated by any government. Popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin, among thousands of others. These digital assets can be used for transactions or as investments, offering security and anonymity.

Crypto assets are typically stored in digital wallets, which require a private key for access. These crypto wallets can be either "hot" (connected to the internet) or "cold" (offline), with each type offering different levels of security. The private key is crucial for accessing the cryptocurrency, making its safekeeping essential.

How is crypto treated in estate planning?

In the realm of estate planning, cryptocurrency is treated as personal property, similar to stocks or real estate, rather than traditional money. This distinction is crucial because it influences how these assets are transferred upon death. Unlike bank accounts or insurance policies, which can have direct beneficiary designations, crypto requires more deliberate planning to ensure it is passed on to the intended heirs.

Cryptocurrency must be included in a will to specify who should inherit it. However, more than simply naming a beneficiary is required. The private key and access instructions must be securely documented and made available to the estate executor. Without this information, the crypto assets could become inaccessible, effectively being lost forever.

Who inherits cryptocurrency if there is no will?

If someone dies without a will, their crypto assets are distributed according to state intestacy laws. Typically, this means a spouse or children inherit the assets. However, inheriting cryptocurrency under these laws doesn't guarantee access to it. Without the private key, the beneficiaries cannot access the digital wallet, rendering the assets useless.

This underscores the importance of having a will and providing detailed instructions on how to access digital assets. Unlike traditional assets, there is no central authority or customer service to help recover a deceased person's crypto holdings.

Who can access my crypto when I die?

Access to your cryptocurrency upon your death is limited to those who possess the private key and any necessary login information. This means that without proper planning, even if your heirs legally inherit your crypto, they may not be able to access it.

To avoid this, you should name a tech-savvy personal representative in your estate plan who understands how to manage digital assets. This representative will transfer your crypto to your beneficiaries, ensuring your digital wealth is distributed per your wishes.

How do you access crypto when someone dies?

Accessing cryptocurrency after someone dies requires knowing the private key and any associated account information. The process typically involves the following steps:

  1. Locating the Will and Estate Documents: Ensure the deceased had a will and check for any instructions regarding their digital assets.

  2. Finding the Private Key: This is essential for accessing the crypto wallet. It may be stored in a physical location, like a safe, or digitally in a password manager.

  3. Using the Private Key: With the private key, the executor or beneficiary can access the digital wallet and transfer the assets to the appropriate parties.

Challenges of accessing crypto after death

One of the main challenges in accessing cryptocurrency after death is the high level of security and anonymity associated with these digital assets. The assets are essentially unrecoverable if the private key is lost or unknown. Additionally, the decentralized nature of cryptocurrency means there is no customer service to assist with account recovery.

Another challenge is the lack of awareness and understanding of how to handle digital assets in estate planning. Many people fail to include detailed instructions for accessing their crypto, leading to a potential loss of significant value.

Things to keep in mind to avoid those challenges

To avoid these challenges, it is essential to take several proactive steps:

  1. Document Access Information: Document your digital wallets' private keys and login information.

  2. Store Information Securely: Keep this information in a secure place, such as a secure document storage service or a physical safe, and ensure your executor knows how to access it.

  3. Update Regularly: Keep your estate plan and access instructions updated to reflect any changes in your digital assets or account details.

How to ensure your beneficiaries inherit your cryptocurrency

Ensuring your beneficiaries inherit your cryptocurrency involves more than just naming them in your will. It requires:

  1. Detailed Instructions: Provide clear instructions on accessing your digital assets, including private keys and account information.

  2. Secure Storage: Store these instructions securely but accessible to your representative or executor.

  3. Choosing the Right Executor: Appoint a tech-savvy executor who understands managing and transferring digital assets.

How to leave cryptocurrency in your will

To leave cryptocurrency in your will, follow these steps:

  1. Include Crypto in Your Estate Plan: Clearly state your intentions for your digital assets in your will.

  2. Detail Access Instructions: Provide a separate document with detailed instructions on accessing your crypto wallets, including private keys and passwords.

  3. Keep Information Secure: Store this information securely and inform your executor of its location.

Crypto taxes and inheriting crypto

Inheriting cryptocurrency can have tax implications. When a beneficiary receives crypto, it is considered personal property and may be subject to capital gains taxes upon sale. The value of the crypto at the time of inheritance becomes the basis for calculating any future gains or losses.

Beneficiaries should consult with a crypto tax professional to best understand the tax obligations associated with inheriting and selling cryptocurrency.

Schedule a FREE crypto tax consultation

What happens to your crypto when you die FAQs

Here are answers to frequently asked questions about what happens to your crypto when you die.

What happens to crypto in a dead wallet?

Crypto in a dead wallet remains inaccessible unless someone has the private key. Without the key, the assets are effectively lost forever.

Can crypto be left in a will?

Yes, crypto can be left in a will. However, providing access instructions, including private keys, is crucial to ensure the assets can be retrieved.

Does crypto have to go through probate?

Yes, crypto typically goes through probate as part of the deceased's estate. Proper planning can streamline this process and ensure assets are accessible.

Do crypto accounts have beneficiaries?

Crypto accounts themselves do not have designated beneficiaries like traditional bank accounts. Beneficiaries must be named in a will or trust, and access information must be provided.

To stay up to date on the latest, follow TokenTax on Twitter @tokentax.

Zac McClure
Zac McClureCo-Founder & CEO at TokenTax
Zac co-founded TokenTax after his career in international finance and accounting at JPMorgan, Imprint Capital and Bain. He has worked in more than half-dozen countries and received his MBA from the UPenn Wharton School.
Alex Miles
Reviewed byAlex MilesCo-Founder at TokenTax
Prior to TokenTax, Alex worked as a Product Designer at Dropbox and before that Readmill (acquired by Dropbox). He holds a BS in Digital Information Design - Interactive Media from Winthrop University.

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