What Happens to Your Crypto When You Get On That Bus?
When it comes to cryptocurrency, if you don’t plan, it disappears. If your loved ones can’t find it or access it after you’re gone, it might as well never have existed.
Crypto isn’t like your savings account. There’s no branch manager, no reset password option, and no “Oops, I forgot my seed phrase” recovery. If the key is gone, the crypto is gone. Period.
Step One: Inventory Everything
Start by making a complete inventory:
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Centralized exchanges (Coinbase, Binance)
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Hot wallets (MetaMask, Phantom)
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Cold wallets (Ledger, Trezor)
Don’t forget DeFi protocols, NFTs, and alt-coins you stashed in a different wallet “just for fun.” If your beneficiaries don’t know it exists, they won’t look for it, and even if they do, they may not know how to access it.
Step Two: Write Clear Instructions
Your estate plan saying “I leave my Bitcoin to my niece,” is not enough. She needs a roadmap. Where is it stored? What’s the wallet name? Where’s the seed phrase, the PIN, the passcode?
Write a separate letter of instruction with everything needed to locate and access your digital assets. Keep it safe — ideally outside your computer — and time its delivery to coincide with your incapacity or death.
Step Three: Pick the Right People
Choose fiduciaries who can handle digital assets or know to call someone who can. A personal representative or trustee who doesn’t understand how a wallet works could accidentally lose everything by mismanaging access, throwing away the storage device, or inadvertently creating a taxable event.
Now Let’s Talk About Taxes
This is the part people forget, and it can be a nasty surprise. Cryptocurrency is treated as property by the IRS – not currency. That means every transfer, sale, or conversion is a taxable event.
For trustees or personal representatives:
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If they liquidate crypto to pay estate expenses or distribute funds, they may trigger capital gains or losses that the estate must report.
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If they distribute crypto directly to beneficiaries, they must document the fair market value on the date of distribution for the beneficiary’s future income tax basis purposes.
For beneficiaries:
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They receive a step-up in basis to the fair market value as of the date of death (or alternate valuation date, if elected). That’s good news. But as with all capital assets, if they later sell the crypto and it has appreciated further, they owe capital gains tax on the difference.
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If they don’t understand crypto and immediately liquidate it at a bad time (hello, market crash), they could inadvertently convert an inheritance into a loss.
Oh, and if any of this is held inside a retirement account such as a self-directed IRA with crypto exposure, you’ve got an entirely different tax situation. Required minimum distributions, unrelated business taxable income (UBTI), and prohibited transaction rules may apply. It’s a jungle in there.
Step Four: Don’t Overdo It
Not every crypto holder needs a complex trust or LLC. But all crypto holders need a plan that says:
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What they own
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Where it’s located
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How someone else can access it
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Who that trusted person is
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What the tax implications might be
Our job is to keep it simple, practical, and survivable.
Final Word
Digital assets are a powerful piece of your legacy. Handle them with care. One wrong click, one lost password, and the value vanishes.