Bitcoin Estate Planning Essentials

Bitcoin's unique characteristics—digital nature, cryptographic security, and self-custody options—create specific estate planning challenges. Without proper planning, your Bitcoin could be lost forever when you pass away, inaccessible to even your closest family members.

Why Bitcoin Estate Planning Is Critical

Traditional estate planning doesn't adequately address cryptocurrency. Unlike bank accounts or brokerage holdings, Bitcoin requires specific knowledge and access credentials to inherit:

• Lost keys = lost Bitcoin: If heirs can't access private keys or seed phrases, the Bitcoin is permanently lost
• No password reset: There's no customer service to help heirs recover access
• Knowledge gap: Heirs may not know Bitcoin exists or how to access it
• Time sensitivity: Some inheritance scenarios require quick action (custodian terms, exchange policies)
• Security vs. access: Making Bitcoin accessible to heirs while maintaining security during your lifetime

The Four Pillars of Bitcoin Estate Planning

1. Documentation

Your heirs need to know Bitcoin exists and how to access it:

• Inventory of holdings: List all Bitcoin holdings, custody locations, and approximate values
• Custodian information: Names, websites, account numbers for all exchanges and custodians
• Wallet locations: Where hardware wallets, seed phrases, and backup materials are stored
• Access instructions: Step-by-step guides on how to access each type of holding
• Technical contacts: Names of advisors, Bitcoin experts, or services who can help heirs
• Update schedule: Plan to review and update documentation annually

2. Access Mechanism

Heirs need secure access to your Bitcoin without compromising security while you're alive:

For Custodial Bitcoin (Exchanges, ETFs, Custodians)

• Beneficiary designations: Add TOD (transfer on death) or beneficiary designations where available
• Joint accounts: Consider joint ownership with right of survivorship for spouses
• Executor access: Provide executor with login credentials (stored securely)
• Estate verification: Document what custodians require (death certificate, court documents, etc.)

For Self-Custodied Bitcoin

• Seed phrase access: Secure method for heirs to locate and access seed phrases
• Multi-signature inheritance: Use time-locked recovery keys or collaborative custody
• Safe deposit boxes: Consider bank safe deposit boxes with co-access for trusted family
• Attorney or trustee holding: Professional holds sealed instructions and access information
• Shamir's Secret Sharing: Split seed phrase into multiple parts requiring threshold to reconstruct

3. Legal Documents

Traditional estate planning documents must specifically address Bitcoin:

Will Provisions

• Specific bequests: "I give all Bitcoin held in Coinbase account #123456 to my son John"
• Residuary clause: Ensure catch-all provisions include "digital assets" and "cryptocurrency"
• Executor powers: Grant executor explicit authority to access, manage, and transfer Bitcoin
• No probate disclosure: Consider whether listing Bitcoin details in will (public record) is appropriate

Trust Structures

• Revocable living trust: Avoid probate by holding Bitcoin in trust
• Trustee capabilities: Ensure trustee can legally hold and manage cryptocurrency
• Successor trustees: Name Bitcoin-knowledgeable trustees or co-trustees
• Distribution terms: Consider staged distributions (e.g., 25% at age 25, 25% at 30, etc.)

Digital Asset Power of Attorney

• Incapacity planning: Grant power of attorney for cryptocurrency management if incapacitated
• Limited powers: Can limit to specific actions (HODL only, rebalancing allowed, etc.)
• Immediate vs. springing: Decide if power is immediate or triggers upon incapacity

4. Heir Education

Even with perfect documentation, heirs need knowledge to execute your plan:

• Bitcoin basics: Educate heirs on what Bitcoin is and why you hold it
• Access practice: Walk through access process with heirs (using small test amounts)
• Security awareness: Teach heirs about phishing, scams, and security best practices
• Professional contacts: Introduce heirs to your financial advisor or Bitcoin attorney
• Holding strategy: Discuss your intended holding period and goals

Estate Tax Considerations

Estate Tax Inclusion

Bitcoin is included in your taxable estate at fair market value on date of death:

• Valuation: Use reasonable exchange rate (Coinbase, Gemini, average of exchanges)
• Estate exemption: $13.99 million per person (2025), portable to spouse
• Above exemption: 40% estate tax rate on amounts exceeding exemption
• State estate taxes: Some states have lower exemption thresholds

Step-Up in Basis

One of Bitcoin's most valuable estate planning benefits:

• Basis reset: Heirs inherit Bitcoin at fair market value on death, eliminating built-in capital gains
• Example: You bought Bitcoin at $10,000, worth $100,000 at death—heirs' basis is $100,000, no capital gains tax on the $90,000 appreciation
• Planning opportunity: Hold highly appreciated Bitcoin until death to avoid capital gains tax entirely
• Community property: In community property states, both halves may receive full step-up

Gifting Strategies

Strategic gifting can reduce estate tax exposure:

• Annual exclusion: Gift up to $19,000 per person per year (2025) without using lifetime exemption
• Lifetime exemption: Can gift up to $13.99 million over lifetime without gift tax
• Basis consideration: Gifted Bitcoin retains your low basis (no step-up), unlike inherited Bitcoin
• Appreciating assets: Gift Bitcoin you believe will appreciate significantly to remove future growth from estate

Common Estate Planning Structures for Bitcoin

Simple Will + Letter of Instruction

Best for: Smaller Bitcoin holdings, custodial holdings, simple family situations

• Will includes general bequest of "digital assets" to specific heirs
• Separate letter of instruction (not filed with court) provides detailed access information
• Update letter annually without amending will
• Works well for Bitcoin held in exchanges or ETFs

Revocable Living Trust

Best for: Larger estates, privacy concerns, avoiding probate

• Trust holds Bitcoin (or custodial accounts holding Bitcoin)
• Avoids probate and public disclosure of Bitcoin holdings
• Allows for staged distributions or ongoing management
• Trustee must have authority and capability to hold cryptocurrency

Multi-Signature Inheritance Setup

Best for: Large self-custodied Bitcoin holdings, technical families

• Set up 2-of-3 or 3-of-5 multi-sig wallet
• You hold 2 keys, trusted family member or attorney holds 1 key
• Upon death, family member's key + 1 of your keys grants access
• Prevents unilateral access while you're alive but ensures inheritance access

Bitcoin-Specific Inheritance Services

Best for: Self-custody enthusiasts wanting professional backup

• Services like Casa or Unchained Capital offer inheritance protocols
• Typically use multi-signature with time-locked recovery
• Service holds backup key but can't access without your death/incapacity verification
• Combines self-custody benefits with professional inheritance execution

Common Bitcoin Estate Planning Mistakes

• No plan at all: Assuming heirs will "figure it out" leads to lost Bitcoin
• Overly complex security: Multi-layer encryption or puzzles heirs can't solve
• Single point of failure: Only one person knows where seed phrase is stored
• No regular updates: Documentation becomes stale as holdings change
• Ignoring custody location: Different plans needed for Coinbase vs. hardware wallet
• Generic "digital assets" language: Not specific enough to grant executor proper authority
• Failing to educate heirs: Perfect documentation is useless if heirs don't understand it

Working with Professionals

Bitcoin estate planning requires a team approach:

• Estate planning attorney: Must understand cryptocurrency and digital asset law
• Financial advisor: Bitcoin-knowledgeable advisor to help with custody and allocation decisions
• CPA or tax advisor: Navigate estate tax, gift tax, and basis step-up strategies
• Technical expert: May need Bitcoin security expert for complex self-custody setups

Estate Planning Checklist

• ☐ Create detailed inventory of all Bitcoin holdings and locations
• ☐ Document access instructions for each custodian or wallet
• ☐ Update will to include specific cryptocurrency language and executor powers
• ☐ Consider revocable living trust for larger holdings
• ☐ Add beneficiary designations to custodial accounts where available
• ☐ Establish secure but accessible storage for seed phrases and keys
• ☐ Create letter of instruction with detailed access information
• ☐ Educate heirs on Bitcoin basics and access procedures
• ☐ Introduce heirs to your financial advisor or Bitcoin professionals
• ☐ Review and update plan annually or when holdings change significantly
• ☐ Consider multi-signature setup for large self-custodied holdings
• ☐ Execute digital asset power of attorney for incapacity planning