The National Association of Unclaimed Property Managers indicates that roughly one in seven individuals fails to claim property that could be theirs. The recent sharp decline in Bitcoin and ether prices has caught immediate attention, but this issue ties into a bigger problem of estate planning that’s likely to grow as more people invest in cryptocurrencies.
Many individuals overlook the importance of including cryptocurrencies in their estate plans or forget to inform their heirs how to access their crypto assets. Recent findings suggest that about 14% to 17% of adults in the U.S. possess cryptocurrencies, which raises concerns about potential loss of access to these funds.
“It’s easy to include real estate or mutual funds in a will, but as cryptocurrencies become a larger part of people’s assets, there’s a significant risk that these inherited assets could be lost,” explained Azriel Baer, a partner at the law firm Farrell Fritz specializing in estate planning.
One possible solution is crypto ETFs, such as the iShares Bitcoin Trust (IBIT), which have become more popular since the approval of spot Bitcoin ETFs by the SEC in 2024, followed by Ethereum ETFs like the Fidelity Ethereum Fund ETF (FETH). These ETFs allow investors to engage with the crypto market without directly owning the currencies, thereby lowering the risk of losing actual crypto assets.
However, common estate planning errors among crypto owners must be addressed quickly. Here are a few of the significant issues that need to be tackled:
Wills Often Neglect Digital Assets
Only about 24% of Americans have wills that detail how their assets should be managed posthumously, according to research from Caring.com. And, even for those who have created wills, many haven’t updated them in years. This oversight can lead to issues as outdated wills may not reflect current wishes. Especially for cryptocurrencies, lacking updated language in estate plans could leave trustees and executors without legal authority to access these assets.
Patrick D. Owens, a shareholder at Buchalter, noted, “People commonly wait a decade or longer to update their estate planning documents. If you don’t keep them current, you’re really behind.” Without the proper language for digital assets, heirs might have to go through court to gain access to these funds. “It’s possible they might gain access, but it’s definitely a hassle,” Owens remarked, acknowledging the time and costs involved.
Crypto Assets Can Get Tied Up in Court
While a standard will serves many, attorneys often recommend that clients also consider a revocable living trust as part of their estate plan. Even though creating a will is cheaper, a trust provides greater privacy and can streamline the probate process. By transferring cryptocurrencies into a revocable living trust, the trustee can access these assets right away, avoiding the lengthy probate wait time that can often extend for months, especially during volatile market periods. Baer emphasized that putting crypto assets in a trust can avoid many probate-related headaches.
Lack of Communication on Crypto Access Could Mean Big Losses
It’s not necessary to disclose your crypto wealth to your heirs before passing, but it is crucial to ensure they know how to access it. Baer described a case where heirs lost tens of millions in crypto because they lacked knowledge of the deceased’s private keys, which are essential for accessing these funds.
He suggested that instructions should be kept securely, whether stored safely at home, with a lawyer, or through specialized crypto inheritance services. However, sharing sensitive information like private keys should be avoided in a will since that document becomes public once it enters probate.
Designated Trustees May Not Be Suitable for Crypto Management
The person you choose to manage your assets might not be equipped to handle cryptocurrencies. The volatility of crypto can confuse those unfamiliar with it, which could lead to unfortunate financial mishaps. Baer pointed out that if someone takes too long to get a grasp on trading, significant losses can occur. “Uncle Bob is great, but he might struggle with these unfamiliar asset classes,” he noted.
Even some institutional trustees hesitate to manage cryptocurrencies. Owens recounted a scenario where a client had $500,000 in Bitcoin and Ether. The institutional trustee wouldn’t take responsibility for the crypto, necessitating the appointment of a special trustee. Thankfully, the client’s nephew stepped in, but finding a qualified replacement can be both time-consuming and costly.
Overlooking Crypto Tax Planning Can Be Costly
Jonathan Forster, a shareholder at Weinstock Manion, mentioned that the surge in cryptocurrency values means many hold substantial amounts, leading to potentially hefty taxes, including income and inheritance taxes. These could significantly impact families if not properly addressed.
The federal estate tax exemption for 2025 is set at $13.99 million per individual, and certain states impose their own inheritance taxes. Understanding how crypto ownership affects your financial situation is crucial while you’re alive. Some of Forster’s clients, for instance, possess over $50 million in crypto and sought efficient ways to channel funds to their children. They formed a limited liability company, transferred their virtual currency to it, and then gifted interests in the LLC to an irrevocable trust for minors.
Many crypto investors lack knowledge about their cost basis, which can complicate matters, particularly if they intend to gift digital assets during their lives. Baer emphasized, “If you want to gift assets, it’s crucial to have the appropriate basis for the recipient to accurately account for them if sold.” Tracking this information can be tedious, but it’s vital.
