“I have cryptocurrency, but no one knows how to access my wallet. Do I have an estate planning problem?”
Yes, if you own cryptocurrency but haven’t made arrangements for others to access your “wallet” after your death or incapacity, you’re vulnerable to a significant estate planning risk that could result in the permanent loss of your digital assets. Having recently encountered this issue with a client, I’m eager to share my insights and strategies that I now incorporate into my clients’ plans.
Cryptocurrency, while potentially one of the most valuable asset classes in modern estates, is also highly vulnerable. Unlike traditional investments like stocks, real estate, or bank accounts, cryptocurrency relies on decentralized blockchains without a central authority, “forgot password” recovery mechanisms, or intermediaries to intervene. Ownership is solely dependent on the control of private keys, seed phrases (typically 12-24 words), or wallet credentials. Losing these keys renders the assets irretrievable, regardless of court orders or inheritance laws.
Recent estimates suggest that a significant portion of Bitcoin, approximately 15-20%, may have already been permanently lost due to forgotten keys, destroyed hardware, or the untimely passing of owners without proper estate planning. While not all such losses are directly attributable to estate planning failures, inadequate inheritance mechanisms do play a substantial role in exacerbating this issue.
Why This Poses a Serious Problem
Common scenarios include:
- Family members know that you invested in cryptocurrency but have no clue where the wallets reside (e.g., hardware devices, software wallets, or exchange accounts).
- Your family successfully locates a device or account but they lack the private key, seed phrase, or multi-factor authentication details.
- Perhaps your family locates your cryptocurrency and manages to gain access, but then delays in probate process result in erase substantial value amid price swings.
- Standard estate planning documents often prove inadequate. Including private keys in a probated Will risks theft. In addition, without the clear authority for fiduciaries to handle digital assets, legal hurdles to access often exist.
In essence, while cryptocurrency is legally inheritable, the absence of reliable access after death renders it practically non-existent for your heirs.
Practical Steps to Solve the Problem
The good news is that the risk is entirely manageable with targeted strategies. Every holder of cryptocurrency should consider implementing the following:
- Build a Comprehensive Digital Asset Inventory. Document all holdings: wallet types (custodial vs. self-custody), public addresses, exchanges, hardware devices, approximate values, and any multi-signature configurations. Update it regularly and store it securely.
- Grant Explicit Legal Authority in Your Planning Documents. Amend your Will, Revocable Trust, and Financial Power of Attorney to specifically reference digital assets. Most states (Maryland included) have adopted versions of the Revised Uniform Fiduciary Access to Digital Assets Act, which facilitates fiduciary access when properly authorized.
- Securely Share Access Information. Never include private keys or seed phrases in your Will or Revocable Trust, as they become public before or after your death. Instead:
- Draft a separate “letter of instruction” or memorandum with detailed, step-by-step access guidance.
- Store it securely (e.g., encrypted digital file, safe deposit box, or with your attorney).
- Use durable methods like engraving seed phrases on fire-proof and flood-resistant metal plates.
- Investigate the availability of multi-signature wallets, which allow one key to remain with you, and another with a trusted party and/or secure service.
- Account for Market Volatility and Tax Implications. Cryptocurrency’s price fluctuations make swift access critical. Heirs benefit from a stepped-up basis (potentially minimizing capital gains taxes), but poor planning can lead to avoidable losses in value and/or tax issues.
- Review and Update Regularly. Cryptocurrency technology has, and continues to, advance rapidly. Reassess your plan annually, after significant portfolio changes, wallet updates, or emerging innovations.
Final Thoughts
If your loved ones are unable to access your cryptocurrency, it simply cannot be transferred to your intended heirs. Instead, it will be lost forever, disappearing into the blockchain and adding to the estimated billions already lost. This is not just speculation; it’s a recurring issue in estates today.
The solution lies in the proactive and targeted strategies outlined above. Therefore, please don’t let cryptocurrency’s core strength, decentralization, become a barrier preventing your family from benefiting. Take action now, and your family will thank you. If you’re uncertain about how your cryptocurrency will impact your estate plan, schedule a consultation with an attorney on the Estates team at Liff, Walsh & Simmons to ensure you’re prepared for this common issue our clients are encountering.
Greg Ferra, a Partner at Liff, Walsh & Simmons, leads the Estate Planning & Administration practice. His passion for estate planning and administration stems from the opportunity to challenge himself and devise innovative plans for his clients. He is delighted when he can provide his clients with novel and effective solutions that have not previously been considered.
At Liff, Walsh & Simmons, our Estate Planning & Administration practice area helps individuals and families protect their legacies and plan for the future. We provide personalized guidance in wills, trusts, powers of attorney, and comprehensive estate plans tailored to each client’s unique circumstances. Our attorneys are committed to making the estate planning process clear, manageable, and aligned with your goals, providing peace of mind and security for you and your loved ones. Please contact Liff, Walsh & Simmons at 410-266-9500 to schedule a consultation.
