In recent years, cryptocurrencies have emerged as a significant asset class, presenting both unique opportunities and challenges for estate planners and their clients. As the popularity and adoption of cryptocurrencies continue to rise, it’s becoming increasingly important to include them in estate plans. With their unique characteristics and complexities, proper management and integration of cryptocurrencies into estate planning requires careful consideration. Below, we’ll explore some recommendations and best practices for effectively incorporating cryptocurrency into your estate planning strategy.
Before delving into estate planning considerations, it’s essential to have a solid understanding of what cryptocurrencies are and what makes them unique. Cryptocurrency is a form of digital currency that uses encryption for security. Cryptocurrencies operate on a technology called blockchain, which is a distributed ledger enforced by a network of computers. Cryptocurrency differs from traditional assets in several key ways. Unlike bank accounts or real estate, cryptocurrencies like Bitcoin, Ethereum, or Solana are decentralized, meaning there’s no central authority from which you can recover your funds if you lose access to them. Ownership is tied to a private key, a unique string of characters, which serves as the digital equivalent of a bank vault’s key. Losing this private key can render your cryptocurrency irretrievable. Some readers may be familiar with the case of UK resident James Howell, who in 2013 threw away a laptop hard drive that held the private key for 8,000 Bitcoin, worth $846 million as of January 2025. Despite attempts to locate his hard drive in the local landfill, Mr. Howell has so far been unsuccessful in recovering his crypto assets.
Given the decentralized nature of cryptocurrency, how private keys are stored has big implications for how crypto assets can be incorporated into an estate plan. The first important decision for an owner of crypto assets to make is whether to store those assets in a “cold wallet” or “hot wallet.” Hot wallets refer to storage methods connected to the internet, such as mobile apps or crypto websites. Hot wallets provide immediate access to your cryptocurrency holdings, making them suitable for day-to-day transactions. However, in the context of estate planning, the accessibility offered by hot wallets can come at the expense of the security and preservation of the assets for your beneficiaries. Cold wallets, meanwhile, refer to offline methods for storing private keys, such as writing your private key on a physical piece of paper and keeping it in a secure deposit box or safe. Cold wallets, being offline, offer greater protection against cyber threats, unauthorized access, and hacking attempts. When planning for the transfer of cryptocurrency assets to beneficiaries, using cold wallets for long-term storage can help ensure the security and integrity of those assets.
To enhance security and mitigate the risk of unauthorized access to your crypto holdings, you may also consider utilizing “multisignature wallets.” These wallets require multiple private keys to authorize transactions, offering an added layer of protection. Alternatively, you can opt for custodial services provided by cryptocurrency exchanges or third-party providers. These services can help safeguard your assets and facilitate their transfer to your beneficiaries according to your wishes.
Another essential step in incorporating cryptocurrencies into your estate plan is to create a comprehensive inventory of your holdings. Making a detailed list of all your cryptocurrency assets, including the type of cryptocurrency, wallet addresses, private keys, and any relevant exchange accounts, will make it much easier for your fiduciary to distribute those assets according to your wishes upon your death. Once you create this inventory, ensure that the information is regularly updated and securely stored. Furthermore, consider providing clear instructions on accessing these assets to your attorney or fiduciary in the event of your incapacity or passing.
Cryptocurrency markets are notoriously volatile, with prices subject to rapid fluctuations. Trustees holding these assets will need to monitor market conditions closely and implement risk management strategies to mitigate the impact of price volatility on trust assets. Failure to do so could result in legal liability if there are significant losses or diminished trust value. For that reason, it is wise to avoid appointing someone unfamiliar with the cryptocurrency market as the Trustee of any trust that includes crypto assets. You may even consider designating a special digital executor or trustee in your estate plan documents. A digital executor or trustee is a person specifically tasked with managing digital assets after your death who has the knowledge and expertise to handle your digital assets effectively. These fiduciaries can assist your beneficiaries and other fiduciaries who may be less familiar with cryptocurrency and its management.
While the current political climate is highly favorable for crypto assets, the regulatory landscape is continually evolving. Therefore, it’s essential to regularly review and update your estate plan to reflect any changes in your cryptocurrency holdings, laws, or personal circumstances. Periodic reviews with your estate planning attorney can help ensure that your estate plan remains relevant and effective over time.
Although cryptocurrencies are different from traditional assets, some age-old estate planning wisdom holds true. Particularly, effective communication is key to creating a successful estate plan. Make sure your loved ones are aware of your cryptocurrency holdings and your intentions regarding their inheritance. Provide your future fiduciaries and beneficiaries with clear instructions on how to access and manage these assets. Having an open dialogue now can help prevent confusion and disputes among family members in the future.
