10 Critical Questions to Ask About Cryptocurrency in Estate Planning
Co-authored by Lori Cochrane, CLPF and Jarod Ong, CFP
Holding cryptocurrency can significantly complicate estate planning, trust administration, and wealth transfers. Because digital assets operate on decentralized networks without traditional institutional safety nets, failing to account for them properly can result in permanent asset loss, tax penalties, or public privacy exposure.
Whether you already hold digital assets or are considering adding them to your portfolio, here are 10 critical questions to discuss with your fiduciary or estate planning professional:
1. Do you currently own cryptocurrencies, or do you intend to in the future?
Establishing full transparency with your trustee or wealth manager is the essential first step. Knowing whether digital assets exist—or are planned for the future—ensures your overall estate strategy is built to handle non-traditional holdings.
2. How are your cryptocurrency assets stored?
Crypto storage directly affects how an executor or trustee can access the assets upon a trigger event:
Custodial Exchanges: Assets held on platforms (like Coinbase or Kraken) may be accessible via traditional legal court orders or legal representative protocols.
Hot Wallets: Software wallets connected to the internet require specific login credentials and device access.
Cold Wallets: Hardware devices (like Ledger or Trezor) kept offline require the physical device as well as the private key or seed phrase to recover funds.
3. Do you maintain detailed historical records of your crypto transactions?
Unlike bank accounts that generate automatic monthly statements, crypto transactions across multiple exchanges, wallets, or blockchains require diligent record-keeping. Comprehensive transaction histories are vital for establishing cost basis and ensuring proper reporting.
4. How do you handle tax accounting for your cryptocurrency?
The IRS treats cryptocurrency as property, meaning every sale, swap, trade, or conversion can trigger a taxable capital gains event. Your legal and financial team needs visibility into your tax tracking methods to ensure compliance and avoid unexpected tax liabilities for your estate or beneficiaries.
5. Have you updated your estate planning documents (such as a Will or Trust) to include crypto assets?
Standard estate documents often lack specific language addressing digital assets, private keys, or digital executor powers. Explicitly incorporating crypto into your estate plan ensures your trustee has the legal authority to locate, manage, and transfer these assets.
6. How do you want your cryptocurrency distributed upon death?
Digital assets require clear distribution instructions. You should decide whether you want the actual cryptocurrency transferred directly to your beneficiaries (in-kind transfer) or if you prefer the assets to be liquidated into fiat currency (U.S. Dollars) prior to distribution.
7. Are you aware that probate court is a matter of public record?
If cryptocurrency is passed through a Will rather than a Trust, it may go through probate court. Because probate files are publicly accessible, listing specific wallet addresses, holdings, or recovery details in a Will can expose your estate to security risks and unwanted public scrutiny.
8. Does your trust agreement explicitly allow or restrict cryptocurrency investments?
Trust agreements govern what a trustee can and cannot do. It is crucial to verify that the language within your trust explicitly permits holding or investing in digital assets, as boilerplate trust language may unintentionally restrict non-traditional asset classes.
9. Are you familiar with the trustee’s duties under the Uniform Prudent Investor Act (UPIA)?
Under the UPIA, professional fiduciaries and trustees are legally obligated to manage trust assets prudently. This includes mandatory requirements for portfolio diversification and careful consideration of tax consequences—standards that can be challenging when managing volatile assets like crypto.
10. If your trust holds crypto, are you willing to sign a release and indemnification regarding the duty to diversify?
Because cryptocurrency can be highly volatile, holding a concentrated crypto position may conflict with a trustee's statutory duty to diversify under the UPIA. Granting a formal release and indemnification protects the trustee while allowing your trust to maintain its intended digital asset allocation without forcing an unwanted sale.
Planning Ahead
Navigating digital assets within a trust or estate requires careful coordination between technical security, legal authority, and fiduciary duties. If you hold cryptocurrency or plan to acquire digital assets, reach out to our team to ensure your estate plan is fully prepared to protect and transfer your wealth seamlessly.
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Source & Acknowledgements: Significant portions of the framework and fiduciary questions in this guide were adapted from content originally written and published by Jarod Ong, of Prudent Investors. Thank you, Jarod!
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