Crypto in Estate Planning: A New Asset Challenge


Introduction: Bridging Ancient Wisdom with Modern Digital Wealth

As we navigate through the rapidly evolving landscape of financial assets, it becomes increasingly clear that the principles of estate planning, a concept as old as civilization itself, are more relevant than ever. The ancient Romans, renowned for their meticulous legal systems and asset management, laid the groundwork for what we now recognize as estate planning. They understood the importance of safeguarding their wealth and ensuring its proper distribution long after their time. Fast forward to today, and we find ourselves in a similar situation, albeit with a modern twist: the emergence of cryptocurrencies.

Cryptocurrencies, like Bitcoin and Ethereum, represent a new era of digital wealth. They are more than just a financial fad; they are a testament to the human spirit’s continuous quest for innovation and efficiency in asset management and transfer. Just as the Romans used their ingenuity to manage and bequeath their estates, modern-day individuals must now consider these digital assets in their estate planning.

However, planning for the distribution of cryptocurrency assets after death presents unique challenges. Unlike traditional assets, cryptocurrencies operate in a digital realm, governed by complex technologies like blockchain, and are subject to a rapidly changing legal landscape. This blog post aims to explore the critical need for including cryptocurrency in estate planning, drawing parallels between ancient practices and modern needs. We will delve into understanding the nature of these digital assets, their legal implications, and the strategies to effectively include them in estate plans. Our journey from the storied past of Roman financial wisdom to the cutting-edge future of digital wealth begins here, underscoring the timeless importance of proactive and strategic estate planning.

Section 1: Understanding Cryptocurrency and Blockchain

In the realms of finance and technology, few innovations have sparked as much interest and speculation as cryptocurrency. To truly grasp the importance of including cryptocurrency in estate planning, we must first understand what it is and the groundbreaking technology it rests upon: blockchain.

Cryptocurrency: The Digital Denarius

At its simplest, cryptocurrency is digital or virtual currency that uses cryptography for security. It functions independently of a central bank, standing apart from traditional fiat currencies like the dollar or euro. The concept of cryptocurrency, while novel, echoes the historical evolution of money. Just as ancient Rome introduced the denarius, revolutionizing trade and economic systems, cryptocurrencies like Bitcoin and Ethereum are reshaping our understanding of value and asset management in the digital age.

Cryptocurrencies are not merely digital versions of money; they represent a new asset class with unique properties. They’re accessible globally and provide a level of transparency and security that is unrivaled by traditional forms of currency. This global accessibility and security make them an appealing addition to modern estate planning, mirroring the way precious metals and land titles once dominated ancient Roman estate considerations.

Blockchain: The Modern Ledger

Blockchain technology is the backbone of cryptocurrency. It is a distributed ledger that records all transactions across a network of computers. This technology ensures that each transaction is secure, transparent, and immutable. In ancient times, record-keeping was crucial for tracking ownership and transactions of assets, but it was often centralized and prone to errors or tampering. Blockchain, in contrast, is decentralized and virtually tamper-proof, providing a level of reliability and trustworthiness that is essential for managing digital assets.

Each transaction on a blockchain is recorded in a ‘block’ and linked to previous and subsequent blocks, forming a chain of information that is open for verification but secure from unauthorized alterations. This method of recording transactions ensures that the history of a cryptocurrency, like Bitcoin, is traceable and transparent, making it an ideal asset to include in estate planning.

Decentralization: A Leap from Central Authority

The decentralized nature of cryptocurrencies is one of their most defining and revolutionary aspects. Unlike traditional banking systems where transactions are monitored and facilitated by central authorities (like banks), cryptocurrencies operate on a peer-to-peer basis. This decentralization was a response to the global financial crisis of 2008, highlighting the need for a more transparent and secure system of financial transactions.

In estate planning, this decentralization means that cryptocurrencies can offer a level of autonomy and security that traditional assets cannot. They allow for direct transfer of assets without the need for intermediaries, echoing the ancient Roman ideal of efficient and direct management of one’s estate.

In conclusion, understanding cryptocurrency and blockchain technology is crucial for modern estate planning. These digital assets represent the evolution of financial systems, from the tangible wealth of ancient Rome to the digital wealth of today. Just as the Romans innovated with their financial instruments, we too must adapt our estate planning strategies to include these new digital assets, ensuring that our legacies endure in the digital age.

Section 2: The Legal Landscape of Cryptocurrency

As cryptocurrency cements its position in the global financial system, it brings along a complex legal landscape that must be navigated with care, especially when considering estate planning. Understanding how cryptocurrency is treated under current laws and its tax implications is crucial for effective estate management.

Cryptocurrency’s Legal Status

In the United States, cryptocurrency is classified not as currency, but as property for tax purposes. This distinction is critical in understanding the legal treatment of digital assets. Like property, every transaction involving cryptocurrency – whether it’s buying, selling, or exchanging – can trigger tax events. This treatment is reminiscent of the Roman era, where transactions of certain assets, like land or valuable commodities, often had tax implications. However, the decentralized nature and the digital form of cryptocurrency add layers of complexity to this age-old process.

The legal status of cryptocurrency also varies globally, with different countries adopting different stances and regulations. This global variance requires careful consideration, especially for individuals with assets or beneficiaries in multiple countries. Estate planners must stay informed and adaptable to these ever-changing legal landscapes, similar to how legal experts in ancient Rome had to be knowledgeable about the laws and customs of various territories under Roman influence.

Tax Implications of Cryptocurrency

Since cryptocurrencies are treated as property, they are subject to capital gains tax. This means that the difference between the buying price and the selling price of the cryptocurrency is taxable. This situation is analogous to selling a piece of art or real estate at a profit, where the gain realized is subject to taxation.

In estate planning, these tax implications cannot be overlooked. For instance, if cryptocurrency is bequeathed to heirs, they might be liable for taxes upon the eventual sale of the assets. This scenario requires strategic planning to minimize tax burdens, similar to how wealthy Roman families would plan their estates to reduce the tax burden on their heirs.

Keeping Records and Valuation Challenges

Another crucial aspect is the record-keeping and valuation of cryptocurrency assets. The fluctuating nature of cryptocurrency values can present challenges in accurately valuing the estate for tax purposes. Accurate and detailed records of transactions, including dates, amounts, and values, are essential. This requirement harks back to meticulous record-keeping practices of ancient civilizations, where accurate records were key to managing estates and ensuring proper distribution of assets.

In conclusion, the legal landscape of cryptocurrency is as complex as it is dynamic. Navigating this landscape requires a deep understanding of the legal status and tax implications of digital assets. Just as the legal experts of ancient Rome adapted their strategies to the evolving political and economic landscapes of their time, modern estate planners must adapt their strategies to include cryptocurrency, ensuring that the estates they manage are compliant and optimized in the face of changing laws and regulations.

Section 3: Cryptocurrency in Estate Planning: Addressing the Complexities

Estate planning for cryptocurrency is a multifaceted endeavor, encompassing various challenges that traditional assets don’t typically pose. Cryptocurrencies, with their volatility and unique nature, require estate planners to adapt and innovate to ensure efficient and effective transfer of these assets.

Navigating the Volatility of Cryptocurrency

The volatile nature of cryptocurrencies like Bitcoin and Ethereum presents a significant challenge in estate planning. The value of these assets is determined on the date of death, and this can lead to complications, particularly when there’s a significant difference between the valuation at the time of death and the time of transfer to beneficiaries. If the value of the crypto assets drops significantly post-death, it could create difficulties in covering potential estate taxes, akin to the challenges faced when valuing fluctuating assets in ancient times.

1. Planning with a Will

Incorporating cryptocurrency into a will requires careful planning. It’s crucial to provide clear instructions on how to access these digital assets, including passwords, private keys, seed phrases, and any related authenticator apps. This information can be stored securely, such as on a password website or in a bank deposit box, and specific instructions for accessing them should be outlined in the will.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) mandates express consent for executors or fiduciaries to access digital accounts. Therefore, explicit permission for accessing cryptocurrency accounts must be included in the will. Estate planners must guide their clients in providing this necessary consent to ensure smooth transfer and management of crypto assets.

When distributing crypto assets, direct transfer to beneficiaries like giving them access to the accounts can be the simplest method. However, if assets are to be divided among multiple beneficiaries, like gifting certain cryptocurrencies to friends or family, this requires transferring assets to their respective wallets, which can be complex and might incur tax consequences.

2. Planning with a Trust

Using a trust to manage cryptocurrency assets can be advantageous for tax planning. However, the Uniform Prudent Investor Act (UPIA) often requires trustees to manage assets within a trust reasonably, which may pose a challenge due to the high volatility of cryptocurrencies. Specific instructions can override UPIA, allowing the trust to hold these assets despite their risk. Estate planners must stay abreast of evolving tax laws that could impact the use of trusts for cryptocurrency.

3. Tax Planning

Effective tax planning is crucial when dealing with cryptocurrencies due to the regular occurrence of taxable events. Accurate records of fair market value (FMV) at each transaction are essential, as these will be used to determine gains and losses upon the taxpayer’s death. The complexity of keeping track of these transactions can be daunting and requires meticulous record-keeping.

Tools like CoinTracker can assist in maintaining records of crypto transactions, which is vital for reporting estate income tax accurately. The type of transactions, whether they involve direct transfers, staking, or exchanges on platforms, can have varied tax implications. Understanding and planning for these implications is crucial for effective estate planning.

Section 4: Reimagining Estate Planning in the Era of Cryptocurrency

The rise of cryptocurrency in the financial world compels a reevaluation of traditional estate planning strategies. While cryptocurrency is often treated as a digital currency, its diverse nature suggests that it could fall into several categories, including securities, necessitating a distinct approach in estate planning.

Redefining Cryptocurrency’s Classification

  1. Cryptocurrency: Beyond Traditional Currency: Generally, cryptocurrencies are viewed and treated as digital currencies. However, this perspective oversimplifies their multifaceted nature. Cryptocurrencies like Bitcoin and Ethereum, often used as transactional mediums, do exhibit currency-like characteristics. Yet, this classification doesn’t fully encapsulate their potential and utility.
  2. The Securities Aspect of Certain Cryptocurrencies: Some cryptocurrencies bear similarities to securities, especially those representing investment contracts or stakes in projects. These types often embody characteristics of financial instruments, akin to stocks or bonds, where the value is tied to the performance of the underlying venture or company. This resemblance raises questions about the appropriate regulatory framework and considerations in estate planning.
  3. A New Asset Class for Cryptocurrency: Given the complexities and multifaceted nature of cryptocurrencies, treating them as a separate asset class might be the most appropriate approach. This new asset class, “cryptographical assets,” would provide a more tailored regulatory and legal framework. Such categorization allows for the accommodation of the diverse range of functions and forms that cryptocurrencies take, from transactional tokens to investment vehicles and digital collectibles.

Adapting Crypto Estate Planning Strategies

The evolving nature of cryptocurrency demands that estate planners expand their expertise and adapt their methods. Understanding the unique characteristics of different types of cryptocurrencies and how they fit into the current legal and tax landscape is crucial. Estate plans should address the specifics of accessing and transferring these digital assets, considering their categorization as currencies, securities, or unique assets.

Proactive Advocacy and Technological Integration

Estate planners must not only adapt to the current state of cryptocurrency but also advocate for legal and regulatory frameworks that best serve their clients’ interests. This includes pushing for clear guidelines on the classification and taxation of various types of cryptocurrencies.

Moreover, embracing blockchain technology as a tool in estate planning can lead to more secure and efficient management of digital assets. Blockchain’s potential in executing and managing estate planning documents presents an opportunity for innovation in the field.


As cryptocurrency continues to assert its presence in the financial world, its integration into estate planning is inevitable. The unique characteristics of cryptocurrency, straddling the lines between currency, security, and a new asset class, require estate planners to be versatile and forward-thinking. Just as ancient civilizations adapted their wealth management strategies to accommodate new forms of assets, modern estate planners must evolve their practices to effectively manage and transfer the digital wealth of today’s world. This evolution is not just a challenge but an opportunity to redefine the landscape of estate planning in the digital age.

Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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