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Can You Inherit Crypto?

Written by: Mathew Courtney, Esq. , Contributing Author
Reviewed by: Catherine Hodder, Esq. , Senior Legal Writer
Last updated March 06, 2024

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Cryptocurrency and terms such as “blockchain,” “Bitcoin,” and “Ethereum” are still relatively new to the average person. But what happens to crypto assets when you die? Crypto investors know there is value in their digital assets. and want to ensure their investments make it to their intended beneficiaries. This article clarifies how cryptocurrency and crypto inheritance work in estate planning and probate courts.

Table of Contents

What is Cryptocurrency?

Before diving into how inheritance and cryptocurrency work, it is important to understand what cryptocurrency is.

The IRS considers cryptocurrency a “digital asset,” which is currently not regulated by the government. Unlike paper money and coins, cryptocurrency has no physical form. Instead, crypto owners can send and receive payments via peer-to-peer networks without regulation.

In order to buy cryptocurrency, you have to use a cryptocurrency exchange such as Coinbase, Binance, Robinhood, or FTX to transfer fiat money from your bank account. From there, you can use the transferred funds to purchase different types of cryptocurrencies such as Bitcoin, Litecoin, or Ripple.

One of the biggest reasons people use cryptocurrency is that they can use it anonymously. However, this is also one of its biggest drawbacks. You can store cryptocurrency in a “digital wallet” (or crypto wallet).

There are two types of digital wallets:

  • A “hot” wallet” connected to the internet
  • A “cold” wallet that is completely offline and stored on a USB drive or some other method.

The only way to access an account holder’s hot digital wallet is if they have the private key. A private key is typically a passcode or seed phrase the account holder creates. Now, nobody but the account holder or someone with the private key can access the digital wallet. If you pass away and do not give anyone your private key, those digital assets may be lost forever.

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Can You List Cryptocurrency in Your Will?

Yes. You can list your crypto assets in your will. Cryptocurrencies are not considered traditional assets like a bank account. Instead, crypto investments are considered personal property like a car or real estate. Because cryptocurrencies are treated as personal property, it is important to note how you are devising your personal property in your will.

To pass your crypto investments, list all digital wallets and investments you have made in your will and designate the intended beneficiary. However, do not include your private keys in your will. When you die, and your estate goes through the probate process, your will becomes part of the public record. This information allows hackers to access your private keys and potentially steal your cryptocurrencies.

Instead of listing your private keys in your will, make a written list of any digital wallets and private keys and store the information in a safe-deposit box or fire-proof safe. When your appointed personal representative is administering your estate, they can access the information and pass the investments to who you intended.

How Do Beneficiaries Receive the Cryptocurrency?

When you die, your estate goes through a court process known as probate. During the probate process, a personal representative is responsible for settling your debts and seeing that your beneficiaries receive the inheritance you intended for them.

With cryptocurrency, the process is more complicated. Unlike traditional assets, the personal representative cannot get the authority to transfer funds by providing a death certificate to a financial institution. As mentioned above, the only way to access the funds in a digital wallet is if the person attempting to access the digital wallet has the private key. If the personal representative has the necessary information, they can access your digital currency. Once they have gained access, they can either provide the beneficiary with the information or use a crypto exchange to convert the digital currency to fiat money and disburse the funds as directed.

What If You Expect to Receive Cryptocurrency?

If you have loved ones who are heavily invested in cryptocurrency and believe you may receive an inheritance of this type in the future, you should know what you may be getting.

A digital inheritance is different than receiving traditional money. Because digital assets are considered personal property, they are taxed differently than cash and more like stocks. If you receive digital assets and plan to sell them, you may be subject to capital gain/losses. Keep this in mind as you prepare to file tax returns.

Additionally, you must know how to access the funds if you receive them. If you are not tech-savvy and want to sell the digital assets, you can contact an attorney with experience in cryptocurrency management.

Plan Ahead and Make Sure Your Assets Are Not Lost

The last thing anyone wants after investing is for their investment to be lost forever. Because of the security attached to cryptocurrency, you could lose your assets unless you make a proper plan.

Using online estate planning tools can help you plan how to give away your cryptocurrency.

And if you stand to inherit cryptocurrency, make sure the investor knows how to properly advise their personal representative on how to access their accounts. Also, you can contact a local estate planning attorney if you need extra assistance.

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