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  • Michael Barry

The New Wild West – What Happens when Cryptocurrency is in your Estate?

Cryptocurrency (also known as “crypto”) is a digital currency that has recently broken into mainstream investing. Crypto only exists in digital format and its owners generally do not receive monthly statements or other signs of ownership usually associated with owning bank accounts or traditional investment accounts. Generally, owners of crypto can only gain access to the currency online by entering the password on certain exchanges. This creates a problem for surviving members of cryptocurrency owners if they do not know the deceased’s password or maybe even that he or she owned the currency. One crypto owner famously lost his password and as a result access to almost $220 million worth of crypto.

Cryptocurrency uses blockchain technology to create a decentralized ledger of ownership. It does not exist in physical form (like paper money) and is usually not issued by a single authority such as a government. Since crypto only exists in digital form, owners of the currency purchase, hold and trade via smartphone, computer or tablet. The blockchain technology that makes crypto possible creates a decentralized leger of ownership through independent computers which is maintained in such a way that a third party can determine the ledger is complete and not corrupted in any way.

In 2014, the Internal Revenue Service took the position that crypto is treated as property (as opposed to currency) for tax purposes. Therefore, we follow IRS guidance and treat crypto as personal property. This is important because the sale of crypto will result in a taxable gain or loss. Any trust or estate holding crypto that wishes to liquidate the account to make distributions must report any capital gains or losses resulting from the sale.

Unlike a traditional bank or broker, which typically requires the personal representative of the estate to produce formal documents such as original death certificate and letters testamentary before they can assume control of those accounts, cryptocurrency merely requires the that the personal representative have the decedent’s passcode to access the account online. Most crypto exchanges are still in their infancy and do not have the ability to designate beneficiaries to the account like traditional brokerages. This is creating serious problems for estate and trusts that cannot find the passcodes and as a result those accounts are all but impossible to recover! As a result, we discuss the possibility of leaving crypto passcodes as part of your estate plan documents with our clients. We also make sure our client’s estate plan documents clearly give access to the decedent’s digital assets, computers and cell phone so the surviving family can attempt to discover any crypto account they may not otherwise find. This solves the issue of transferring ownership on death in most cases.

However, leaving a passcode to your surviving family members or personal representative is not without risk. Often (but not always) there is little or no formal oversight for a personal representative with access to the crypto account. A personal representative with a passcode has unfettered access to and management of the account unlike banks or traditional investment institutions that over time and through regulation have built in procedures and safeguards. Moreover, if the personal representative does make an unlawful transfer of crypto from the account, it would be nearly impossible to recover.

To mitigate some risks related to passcode misuse, we sometimes recommend that our clients use cold storge of their crypto accounts. “Cold storage” keeps account information offline by way of a a USB drive or similar device, that contains the account’s passcode concealed from users. The drive then transmits the passcode privately without the knowledge of the holder. Therefore, the personal representative will never directly know the passcode.


At this time, it seems clear that the crypto market is here to stay. Dealing with cryptocurrency in a probate estate or a trust will become common. Also, many families may lose considerable wealth if the deceased did not plan the future transfer and access to the crypto account. Any probate estate, trust or person considering estate planning with investments in crypto should consider the following:

  1. Remember to record and report gains and losses. This is a taxable event and the IRS will begin to crack down aggressively;

  2. Considering leaving your passcode and names of your brokerages/investments in a safe way as part of your estate plan;

  3. Consider if cold storage of the account and passcode on a USB drive will provide any additional benefits;

  4. Make sure your estate plan documents grant rights to digital assets, computers, and cell phones; and

  5. Consider modifying the investment standards for your personal representative so that your estate or trust is able to hold and invest in crypto without violating any duties and obligations under state law such as prudent investor rules (crypto is volatile!)


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