The Overlooked Risk: Crypto Estate Planning for the Modern Investor

As cryptocurrency becomes a larger component of personal wealth, many investors, especially those who self-custody their holdings are confronting the harsh reality that digital assets do not behave like traditional assets when it comes to inheritance. Recently, there have been stories in the media describing how common estate-planning missteps are leaving crypto fortunes vulnerable to being lost, tied up in probate, or subject to unexpected tax liabilities. For many, a lifetime of building wealth may vanish overnight. If you own crypto, now is the time to take a hard look at your legacy plan and ensure the next generation isn’t locked out.

What’s Changed, and What’s at Stake

The problem stems from a combination of digital-specific issues and estate-planning frameworks that haven’t caught up. Among the key challenges:

• Private keys (or seed phrases) left undocumented or inaccessible. Crypto isn’t held in bank accounts and is instead secured by cryptographic keys. If heirs can’t find those keys (or passwords), they may never gain access.

  
  

• Traditional wills and trusts often don’t address digital assets properly. Many people neglect to update their estate plans to include cryptocurrencies, and even if they do, they neglect to provide instructions on how to access them.

  
  

• Institutional trustees and fiduciaries are often unwilling or unable to manage crypto assets. Traditional estate-planning mechanisms may break down if trustees don’t understand or want to deal with self-custody crypto. Clients should learn about the emerging market of third parties who can custody crypto for trustees and learn about that option as well.

  
  

• Tax and cost-basis issues. Many crypto investors have holdings spread across centralized exchanges and wallets, often acquired over time. Without careful record-keeping, heirs may face significant tax complications.

  
  

• Estate tax exposure for large crypto holdings. As crypto values rise (and sometimes fluctuate wildly), investors with large portfolios need to consider estate tax implications, especially given current exemption levels.

  
  

Taken together, these issues highlight a “silent crisis”. This is not a hack, and not a market crash, and instead is just simple old fashioned inattention to legacy and estate planning in the context of digital wealth.

Why Traditional Estate Planning Doesn’t Cut It

Most conventional estate-planning tools; wills, living trusts, beneficiary designations, power of attorney, etc., were built for tangible or custodial assets like real estate, bank accounts, stocks held by brokers. Crypto doesn’t fit neatly into any of these categories.

• A will becomes public through probate so listing private keys or seed phrases there can expose them, while offering no practical way for heirs to execute the transfer.

  
  

• Many trustees or executors may lack experience with crypto or simply refuse to act, especially in connection with self-custodied wallets. Moreover, institutional trustees sometimes decline to handle crypto, forcing heirs to appoint special trustees.

  
  

• Even for more experienced or crypto-savvy clients, tracking cost basis across multiple wallets/exchanges over years can be overwhelming. And then for heirs who sometimes never anticipated even having to deal with digital assets, it would be a challenge to say the least.

  
  

Put simply, the combination of asset-classification, custody, documentation (or lack thereof), and tax complexity, is a perfect storm for crypto-related estate failure.

Practical Steps for Crypto Investors and Their Advisors

For those who hold crypto, or advise clients who do, here are key steps to help avoid the pitfalls.

1. Treat Crypto Like Real Estate and Document It Properly

• Maintain a secure, up-to-date inventory of all crypto holdings, including wallets, exchanges, seed phrases, and passwords or password locations.

  
  

• Consider using a secure vault, safe deposit box, or trusted digital-asset inheritance service.

  
  

• Do not rely solely on a standard will to pass on crypto. Probate can be slow, and often is (especially in New York) and may expose sensitive information.

  
  

2. Use a Living Trust or Other Non-Probate Transfer Mechanism

A revocable living trust (or an equivalent structure) can allow your heirs to access crypto without probate delays. This is often crucial given how fast crypto markets move. This is especially important if the estate might otherwise sit in probate for months.

3. Choose Trustees/Fiduciaries Carefully, Or Use a Specialized Custodian

If you name a trustee, ensure they understand (or are willing to learn) digital assets. Otherwise, consider naming a specialized crypto-savvy executor or using services tailored to digital-asset inheritance.

4. Keep Detailed Records for Cost Basis and Tax Purposes

Document when and where crypto was acquired, exchanges/wallets used, amounts, dates — basically everything that affects cost basis. Without this, heirs may face large, unexpected tax bills when they sell or transfer.

5. Factor in Estate Tax Exposure for Large Portfolios

For investors whose crypto holdings approach (or exceed) the current federal estate tax exemption, consider estate-tax planning strategies. This may include gifting strategies, trusts, or holding crypto in entities or structures that ease transfer.

6. Revisit Estate Plans More Often and Especially After Major Crypto Events

Given the volatility and evolving legal landscape, estate plans for crypto should be reviewed regularly, and especially after major appreciation, sale, gift, or transfer of crypto holdings.

Real-World Consequences: Not a Hypothetical Risk

The risks are not just theoretical. There have already been cases where tens of millions in crypto simply vanished. Not because of a hack, but because heirs lacked access to private keys or passwords. For many, that means a hard-earned lifetime of wealth could evaporate, leaving behind legal headaches, tax complications, and perhaps no financial benefit to the next generation.

What This Means for You and What to Do Next

If you hold crypto, especially self-custodied crypto, do not wait to take action on estate planning. The window to preserve value and protect your legacy is closing fast. We encourage you to, among other things:

• Inventory all digital assets and document access in a secure, updated manner.

  
  

• Work with experienced estate-planning counsel (ideally familiar with crypto) to draft or update trusts, wills, and transfer mechanisms.

  
  

• Reassess every few years, or after any significant crypto-related event.

  
  

At Mattiace Tetro, we believe in combining traditional legal rigor with a deep understanding of emerging assets. We’re committed to helping clients build legacies, not just for today, but for future generations.

If you hold crypto or other digital assets, and you want to ensure your estate plan protects that wealth, now and in the future, we’re here to help. Click here to schedule a 15-minute call so we can review your situation and help build a plan tailored to your digital assets.