TetraMesa

Estate Planning & Digital Assets

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Safeguarding Your Digital Wealth

Cryptocurrency represents a rapidly growing class of digital assets. And actually, as Decentralized Finance (DeFi) gets more mainstream, I’m not even sure the original term “crypto” will even apply for much longer. Either way, more folks have Bitcoin, Ethereum, stablecoins, NFTs, and self-custodied wallets. Any might hold substantial value but behave very differently from traditional property in estate planning. Unlike bank accounts or stocks with named beneficiaries and institutional custodians, crypto relies entirely on private keys, seed phrases, and blockchain addresses. If using a more mainstream centralized exchange as a custodied solution, things might possibly work similarly to a typical brokerage firm. For everything else though? Without proper planning, these assets can become permanently inaccessible upon the owner’s death or incapacity, turning theoretical inheritance into real-world loss. While there’s all kinds of pros and cons we could talk about regarding truly self-sovereign control of your assets, one of the obvious ones goes beyond “Be more careful with your pass code info.” It’s that you can make it so secure, even you or your family can never get to it again.

Why Crypto Estate Planning Is Critical

Crypto ownership has exploded, with millions of Americans holding digital assets. Yet most estate plans were likely drafted before crypto existed, and many owners (especially younger or self-custodied investors) overlook it. The core problem: possession of the private key equals ownership. No court order or bank can “reset” a lost key. There’s often not going to be any firm, individual or entity that any court could compel or offer permission to access such funds. If heirs don’t know where the assets are or how to access them, the crypto effectively vanishes, even if it’s legally part of the estate. Not to mention even if you find them, valuing them might be challenging for tax filing purposes until you liquidate, given the often volatile nature of crypto.

Now, here’s a weird one for you… known crypto assets are likely still includible in the gross estate and subject to estate tax valuation, even if inaccessible due to lost private keys. However, practical enforcement, valuation, and potential loss deductions present significant challenges. In other words, if somehow, some way you know a decedent’s crypto address, (or somehow the IRS comes to), those assets are technically part of the Estate. I had to dig a bit for this, but under IRC Section 2033, the gross estate includes the value of all property in which the decedent had an interest at the time of death. The IRS treats cryptocurrency as property (not currency), per Notice 2014-21 and subsequent guidance. This mirrors treatment of other intangible personal property like stocks, bonds, or patents. I suppose you could just not report it, but that might be just begging for trouble. It may take some time, but the government will at some point catch up to all this data that just sticks around. And if the data ever connects back to a known entity and it turns out to have been part of an Estate, someone will likely eventually get a letter. Maybe years later.

It gets worse. Inaccessibility does not automatically remove the asset from the estate, similar to a lost safe deposit box key, forgotten bank account, or buried physical gold. The estate tax is based on the interest owned, not ease of liquidation. Perhaps obviously, this is nonsense. There has to be a way out of this, right? Of course there is. If the assets are proven irretrievably lost (e.g., via expert analysis of wallet inaccessibility), the estate or heirs might claim a loss deduction. However, here’s the problem. It’s not that simple. This is yet another form. Chances are to navigate this you’re going to need your lawyer and accountant. It might cost you a bunch of billable hours just to sort this out. (Assuming you’re the Executor / Administrator or beneficiary that’s somehow handling all of this.)

By the way, regarding safety deposit boxes and leaving crypto info in them, the moment a bank finds out someone has died, (by whatever mechanism they may learn), access is frozen until someone gets official documents that they have rights to open it, typically called “Letters Testamentary”. So maybe plan on another signer to such things just in case. Even joint owners or people with keys often can’t access it immediately without proper legal documentation. If you consider running to it before the bank finds out, maybe be aware this could be sketchy as well. If you go in quietly right after the death and the bank doesn’t know yet, you might gain access. But removing items could create serious legal problems later (potential claims that you interfered with the estate, disputes over ownership of contents, or even accusations of theft if contested by other heirs). So I’m not suggesting you do this of course. I’m not saying it might be the first thing you should do if you have the key and are a signer. And I’m also not saying maybe there’s critical Estate info in there you should get asap as it may take time to gain access otherwise. I’m just letting you know the deal so you can contact an estate attorney first. I am saying this isn’t even an option for you unless you’re on the signature card or access list at the bank in the first place. So a spouse or relative or some trusted other maybe should be on that list. Many banks don’t even have these anymore these days, so might not be an issue for you.

The bank will typically freeze access upon learning of the death, and heirs/executors need court documents (e.g., Letters Testamentary) to open it. The asset value is still included in the estate for tax purposes, even if temporarily inaccessible. Ironically, they’ll open it anyway at a certain point for lack of payment. But that might be a year or more later. Anything they find might be sold to pay for back fees and costs of drilling out the box, with anything remaining going to the state as unclaimed property (escheatment) after several years. Fun fact: In the U.S., there’s estimated to be about $70 Billion in Unclaimed Funds for 2024. States act as custodians, not owners, but they do earn interest on this. There’s no single clean national number for “earnings” I can easily find because states report this differently. Some call it unclaimed property revenue, some transfer excess to the general fund, some invest the balances, and all still owe valid claims later. A reasonable answer is: states get a multi-billion-dollar annual fiscal benefit, but the exact national “profit” is hard to pin down. So maybe go check to see if you’re missing anything at unclaimed.org or MissingMoney.com

I’m way off track now. But thought you should know.

Time to get back to our core story. Laws like the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), adopted in Connecticut and most states, help by giving fiduciaries (executors, trustees, or agents under power of attorney) legal authority to access digital assets, but only if your documents explicitly authorize it and provide practical access instructions. The obvious question becomes, if you’re the Administrator, can you get access at all. Again, the obvious, private self-custodied wallets will have their own secret keys. However, the RUFADAA and similar aren’t just about financial assets. It’s about digital. So an Administrator may be able to gain access to a password management service, email and other things that could aid in crypto account access and recovery.

The Scale of the Problem: Crypto Assets Lost Due to Inadequate Planning

Exact global figures on losses solely from the death of the principal holder are difficult to isolate because “lost” crypto is often attributed to forgotten keys in general. However, experts widely agree that deaths without inheritance plans contribute significantly to the problem. Key data points include:

  • Between 2.3 and 4 million Bitcoin (roughly 11–20% of the total 21 million supply) are estimated to be permanently lost or inaccessible, valued in the hundreds of billions of dollars. A substantial share stems from deceased owners whose heirs lack private keys or recovery phrases.
  • Analysts project trillions in crypto will transfer via inheritance by 2045, yet low estate-planning rates (only about 23% of crypto owners have any estate plan) amplify the risk.
  • Real-world examples underscore the stakes: The 2018 death of QuadrigaCX CEO Gerry Cotton left ~$200 million in customer funds locked forever because only he held the master keys. Individual estates have lost tens of millions (one documented case involved $60 million in BTC, ETH, and other tokens that became inaccessible).

These losses are irreversible. At least, those that are self-custodied anyway. Exchanges cannot recover self-custodied assets, and blockchain has no “forgot password” button.

Practical Steps for Effective Crypto Estate Planning

A solid plan bridges the gap between legal ownership and practical access. High-level best practices synthesized from estate attorneys and planners include:

  1. Create a Detailed Inventory: List every wallet, exchange account, private key location (never the key itself in the will), seed phrases, and access instructions. Update it as necessary. Store this securely (e.g., encrypted password manager or physical safe) separate from the keys.
  2. Authorize Fiduciaries Legally: Update your will, revocable trust, and durable power of attorney with RUFADAA-compliant language granting your executor/trustee/agent access to digital assets. Name a “digital executor” if desired. Someone tech-savvy who understands crypto.
  3. Secure Key Transfer Without Compromising Security: Avoid putting seed phrases in your will (it becomes public). Use multisig wallets, split keys among trusted parties (like a “treasure map” approach), or reputable digital-asset custodians/trusts. Consider a letter of instruction or separate memorandum referenced in your estate documents.
  4. Address Taxes and Valuation: Crypto is property for estate-tax purposes. Plan for capital-gains basis step-up at death where applicable, and consult a tax advisor for complex holdings like NFTs or DeFi positions.
  5. Test and Communicate: Share high-level plans with your fiduciary and loved ones. Some use “dead man’s switch” services or legacy contacts on exchanges (where available).
  6. Consider Advanced Tools: For larger portfolios, explore crypto-specific trusts, multisignature setups, or professional custodians that support inheritance protocols.

Consult an estate-planning attorney experienced in digital assets. If you can find one. Though I think we can count on most of these folks starting to attend some seminars or what’s going on in these areas, it’s likely not everyone is fully up to speed as yet. Which is maybe perfectly fair given the laws themselves are still being written. Besides potential Federal tax liabilities, the business of death is very much a state level event. State laws vary, and crypto’s volatility and regulatory landscape add layers of complexity. Even worse, if you’re an Executor or Administrator and the decedent is from another state, there could be more complexity regarding legal issues. Or practical ones anyway. Mostly these will have to do with setting up Estate banking accounts and such, but possibly also in gaining access to custodial accounts. And if dealing with international issues? It’s hard for me to even say what other complexities that might entail.

Final Thoughts (Literally in this Case I Suppose)

Crypto’s decentralized nature may be among its greatest strengths for security. But also possibly its biggest weakness for inheritance. A few hours of thoughtful planning can prevent millions from being lost forever and ensure your digital legacy reaches the next generation. No one wants to think about these things. But if you have a family, beneficiaries who will have to deal with things when you’re gone, etc., then inventory your holdings, review your documents, and talk to a professional. There’s a great wealth transfer underway now from Boomers to upcoming generations. Not that many of them are likely holding crypto. But soon? Crypto owners who plan ahead will protect what they’ve built for their beneficiaries. Those that don’t will be letting value just disappear into the digital rearview mirror of transaction blocks fading into history. The point is, don’t wait too long. You’ve already died. Your family will be dealing with enough as it is. Don’t saddle them with this level of complexity and possibly costs just because you couldn’t take a few notes and plan to transfer them securely should the time come. Oh, by the way, this isn’t just about Estate Planning either. Similar structures should work for guardianship, conservatorship should you become incapacitated. Regardless, make a plan, see your lawyer if necessary, and just get it done so your hard won earnings don’t just get lost forever.

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