Protecting Digital Assets and Crypto in Your Estate Plan

Why this matters now

Digital assets—from bank logins and cloud photo libraries to noncustodial crypto wallets—carry real financial and sentimental value. If not planned for, they can be effectively lost at death or create disputes and tax headaches for heirs. In my practice working with clients for over 15 years, I’ve seen estates lose access to sizeable crypto holdings because private keys or account details were never documented or legally authorized for a fiduciary to use.

(Authoritative sources: IRS treats virtual currency as property; see IRS Notice 2014-21 and the IRS Virtual Currency FAQs at IRS.gov. Many states rely on the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) for fiduciary access rules—Uniform Law Commission.)

What counts as a digital asset?

• Cryptocurrency and tokens (noncustodial wallets, exchange accounts)
• Exchange or broker accounts that hold crypto (Coinbase, Kraken, etc.)
• Online bank and investment accounts
• Domain names, websites, and revenue-generating platforms
• Password vaults and password-protected containers
• Social media, email, cloud storage, and digital photo libraries

Each category has different access and transfer mechanics. Custodial accounts (exchanges) often allow online account recovery or beneficiary forms, while private-key wallets require physical custody of keys or seed phrases.

Key legal tools and how they work

1. Wills and wills with a digital assets appendix

• A will can nominate beneficiaries and name an executor, but avoid placing passwords or private keys directly in a will (wills become public record after probate).

1. Revocable living trusts

• Trusts allow you to fund crypto or digital property into the trust for smoother transfer outside probate. Trusts can include specific instructions for access and management.

1. Durable power of attorney (financial)

• Grants an agent legal authority to manage accounts while you’re alive but incapacitated. Make sure the document explicitly covers digital accounts or references a digital asset authorization.

1. Digital asset authorization or separate letter of instruction

• A secure, regularly updated inventory with access directions stored outside the will. This can be a standalone document a fiduciary is authorized to use.

1. Beneficiary designations and account-level forms

• Many exchanges and custodial platforms offer legacy or beneficiary settings. Use these when available to bypass probate for custodial accounts.

For more on using trusts to handle online property, see our guide on Trusts for Digital Estates: Planning for Online Property.

Practical technical safeguards (don’t mix with legal steps)

• Password manager: Store account logins and support access for a named fiduciary; many password managers offer emergency access features.
• Hardware wallets & cold storage: Keep private keys offline. Document where hardware devices are stored and how to retrieve them.
• Seed phrase handling: Never store your seed phrase in a will or an unencrypted file. Consider splitting a seed phrase (Shamir’s Secret Sharing or simple custodial split) and distributing pieces to trusted parties or a secure safety deposit box.
• Multi-signature wallets & social recovery: For substantial crypto holdings, multi-sig setups reduce single-point failures and can be structured so inheritors can coordinate recovery.
• Custodial services: Some custodial providers allow legacy contacts or transfer-on-death options. Check provider policies; they vary widely.

(Consumer protection resources: FTC and CFPB provide guidance on digital fraud and safeguarding accounts—see FTC.gov and ConsumerFinance.gov.)

Tax and reporting considerations

• The IRS treats virtual currency as property, not currency (IRS Notice 2014-21). That means gains and losses are taxed as capital gains when sold or exchanged; exchanges and disposals must be reported on Form 8949 and Schedule D (see IRS guidance).
• At death, property included in the gross estate generally receives a basis adjustment (commonly called a step-up or step-down in basis) under IRC Sec. 1014, but only if the property is included in the estate and accessible to the beneficiary. If heirs cannot access a wallet, the practical benefits of a basis step-up may be lost.
• Large crypto holdings can affect estate tax exposure. Estate tax rules and exemption levels change over time; consult an estate attorney or tax advisor for up-to-date planning.

Steps to add digital assets to your estate plan (action checklist)

1. Inventory everything. Note account names, hosting platforms, usernames, URLs, and whether custody is custodial or noncustodial.
2. Document who should get what. Use clear beneficiary designations where possible and mirror these in trust or will documents.
3. Choose custodial method for crypto: leave on exchange (with beneficiary settings), transfer to a trust, or leave in a hardware wallet with clear instructions.
4. Use a secure password manager and set up emergency access for your fiduciary.
5. Update account recovery options and legacy contacts on platforms that support them.
6. Work with an estate planning attorney to amend wills or trusts and to draft a durable power of attorney that references digital assets.
7. Review annually and after major events (new accounts, asset transfers, births, marriage, divorce).

Practical note from my practice: I recommend a short digital-asset appendix that lists only what an executor needs to know and points them to where credentials are securely stored—do not list passwords directly in estate documents.

Sample, non-legal instruction language (for your advisor to adapt)

• “I direct my trustee to access the digital asset inventory stored in my [named password manager] and to use the credentials only to administer, liquidate, or transfer my digital assets in accordance with this trust.”
• Use this language only as a starting point—have an attorney draft or review enacted clauses so they comply with state law.

Common mistakes to avoid

• Storing passwords or seed phrases in a will (public record risk).
• Using ambiguous instructions or failing to name who has the authority to use keys or accounts.
• Assuming exchanges will automatically transfer assets to heirs; many require legal process or lack beneficiary features.
• Failing to update the inventory and access methods after moving assets or changing platforms.

What executors and trustees should do first

1. Gather the inventory and verify account ownership and custody type.
2. Check for any account-level legacy settings or beneficiary designations.
3. Contact platforms carefully—use the provider’s legacy/contact process and be prepared to provide legal documents (death certificate, letters testamentary, or letters of authority).
4. Preserve evidence of value and transaction history for tax reporting.

Our guide Digital Account Succession: Practical Steps for Executors walks through a practical sequence of actions and paperwork for fiduciaries.

When to consider advanced strategies

• High-value crypto holdings: consider a trust administered by a professional custodian or a trust that holds a custodial account.
• Cross-border holdings or accounts held on foreign platforms: engage counsel experienced in cross-border estate and tax rules.
• Business-related digital assets (domain portfolios, e-commerce stores): blend estate planning with succession and asset-protection strategies.

For entrepreneurs and digital-first families, see Estate Plans for Digital Assets and Online Accounts for tailored considerations.

FAQs (short answers)

• Do I put my crypto passwords in my will? No. Wills become public; store sensitive details in a secure password manager and reference that location in your estate documents.
• Will beneficiaries automatically get my crypto if I die? Not always. Custodial exchanges may require probate or specific legacy procedures; noncustodial wallets require access to keys or seed phrases.
• Is cryptocurrency taxed at death? Cryptocurrency included in the taxable estate may receive a basis adjustment, but estate and income tax consequences depend on the value and whether heirs can access the assets.

Finding the right professionals

• Estate planning attorney familiar with RUFADAA and digital assets.
• CPA or tax advisor who understands crypto reporting and estate tax issues.
• Financial planner or fiduciary experienced with custody and trust funding for digital assets.

Final takeaway

Digital assets are property with legal and technical quirks. The essential steps are inventorying holdings, choosing a custody and transfer strategy (trust, beneficiary designation, or custodial legacy plan), and documenting access in secure, legally recognized ways. In my experience, a modest investment of time now—creating a concise digital-asset appendix, funding a trust where appropriate, and using secure technical controls—prevents loss, reduces conflict, and preserves tax benefits for heirs.

Professional disclaimer: This article is educational only and does not constitute legal, tax, or financial advice. Consult a qualified estate planning attorney and tax advisor to apply these ideas to your situation.

Related articles on FinHelp:

• Estate Plans for Digital Assets and Online Accounts: https://finhelp.io/glossary/estate-plans-for-digital-assets-and-online-accounts/
• Trusts for Digital Estates: Planning for Online Property: https://finhelp.io/glossary/trusts-for-digital-estates-planning-for-online-property/
• Digital Account Succession: Practical Steps for Executors: https://finhelp.io/glossary/digital-account-succession-practical-steps-for-executors/

Authoritative resources: IRS Notice 2014-21 and IRS Virtual Currency FAQs (IRS.gov); Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) via the Uniform Law Commission; consumer protection at FTC.gov and ConsumerFinance.gov.