Biggest mistakes crypto investors make with estate planning

According to the National Association of Unclaimed Property Managers, nearly 1 in 7 people leave their unclaimed property on the table. While the recent intense sales continue bitcoin And ether Although it gets all the attention in the short term, this estate planning problem is a long-term problem and will only get worse as cryptocurrency adoption and ownership increases.

Many people neglect to account for cryptocurrency in their estate plans or fail to let their heirs know how to access their crypto assets. With surveys conducted in recent years gallup And Pew Research With 14 percent to 17 percent of U.S. adults estimated to own cryptocurrency, losing access to these funds is a growing concern.

“Leaving behind property or investment funds in a will is pretty cut and dried, but with more and more assets being placed in cryptocurrency, a large portion of inherited assets are in danger of being lost,” said Azriel Baer, ​​partner in law firm Farrell Fritz’s estate planning and management group.

This problem may be partially alleviated by crypto ETFs, such as the iShares Bitcoin Trust (IBIT), which have gained popularity among investors since the first batch of spot bitcoin ETFs were approved by the SEC; This could be followed a few months later by ethereum spot price ETFs such as the Fidelity Ethereum Fund ETF (FETH). These ETFs allow investors to access the crypto asset class without owning crypto directly, helping to reduce the likelihood of actual crypto being lost.

However, estate planning mistakes among crypto holders are common and preventable. Here are some of the biggest problems cryptocurrency holders need to solve as soon as possible:

Wills often do not include language for digital assets, if at all

According to one study, only 24 percent of Americans have a will that spells out how they want their money and property to be managed after death. questionnaire From Caring.com. According to the survey, even people who have wills have not updated them for many years; Nearly one in four Americans say they have not touched their will since the original draft of the will.

This can be problematic for many reasons. An old will may no longer reflect people’s current wishes. In a crypto-specific context, anyone who has not updated their estate plan in the last few years may not have the language to provide the trustee or executor with legal authority to grant access to digital assets.

“It’s very common for people to not update their estate planning documents for 10, 20 years or sometimes longer. If that’s the case, you’re behind,” said Patrick D. Owens, a Buchalter shareholder and a member of the law firm’s tax, benefits and estate planning practice group.

Due to the lack of language regarding digital assets, your heirs may need to go to court to obtain authorization from the estate’s executor or administrator to access their crypto assets. They will likely provide access, “but it’s a hassle,” Owens said. “Obviously, going to court means time and money.”

Even with a will, cryptoassets could get stuck in court

A standard will is suitable for many people, but many attorneys also recommend that their clients use a revocable living trust as part of their estate plan. It is less expensive to prepare a will, but a revocable living trust offers more privacy and can help limit the time and expense of the probate process after death.

Baer advises clients to transfer their crypto into a revocable, living trust so the trustee can have immediate access upon the owner’s death. It can take six to eight months or more for a will to proceed through probate, and heirs will not have access to assets in the meantime. For example, if the price of the cryptocurrency was falling rapidly, they would have to wait to sell it if the property went into receivership. Putting crypto assets in a revocable trust to avoid probate can avoid many headaches, he said.

Generally, a revocable trust is paired with a transfer will to transfer assets not included in the trust to the trust at the time of a person’s death and distribute them accordingly.

Not sharing basic crypto knowledge could cost millions

You don’t have to tell your heirs that you’re worth a fortune in bitcoin before you die, but you should make sure they know how to access your crypto after you die.

Baer was working on an estate where tens of millions of dollars of crypto fell into the hands of heirs because they did not know the deceased’s private keys, which served as digital passwords to access cryptocurrency funds and prove ownership of blockchain assets.

Someone has to know how to access the assets, Baer said; whether through written instructions in a safe deposit box, a safe at home, instructions from a lawyer, or one of several crypto inheritance services that help ensure the transfer of crypto assets to your family members. Don’t put these private keys or other sensitive information in your will because wills become public through the probate process, he added.

Most appointed trustees can’t handle crypto

The person you choose to manage your other assets may not be the right person to handle the crypto portion of your estate.

Not everyone understands crypto, the volatility involved, or how to trade digital currency, which means a lot of money can be lost accidentally. Baer said the recent surge in Bitcoin price is a reminder that financial losses can be significant if you name someone who took weeks to learn how to trade Bitcoin. “Uncle Bob may be a great person, but he may face more challenges when trading an asset class he is completely unfamiliar with,” he added.

Sometimes even corporate trustees may not be able to take responsibility for crypto. A client of Owens passed away with half a million dollars worth of bitcoin and ether. The corporate trustee overseeing the client’s account refused to take responsibility for the crypto, and a private trustee was elected. Luckily, the customer had a nephew who filled that role, but Owens said finding a suitable replacement can often be costly in time and money.

Lack of planning for crypto estate taxes

Jonathan Forster, a shareholder at law firm Weinstock Manion, said that with the explosion in values ​​around cryptocurrency, many people own large amounts of cryptocurrency holdings, which can be subject to significant taxes, whether income tax or estate tax, and failure to plan can be detrimental to their families.

For example, depending on the size of the property, there may be property taxes due. The federal estate tax exemption for 2025 is $13.99 million per person. Some states also have a state-level property tax.

Knowing the impact of crypto ownership on your estate is an important consideration during your lifetime. Forster has clients with crypto assets worth more than $50 million. They were looking for an effective way to make gifts for the benefit of their children to earn some money from their inheritance. Forster said they formed a limited liability company, transferred the crypto to the LLC, and gifted the interest in the LLC to an irrevocable trust for the benefit of the minor children with an independent trustee.

Many crypto investors fail to follow cost basis, and this can be problematic for many reasons, including if you are considering gifting digital assets during your lifetime. If you want to gift assets while you’re alive, you need to have a basis for the recipient to be able to properly account for the cryptocurrency if it is eventually sold, Baer said. “Following the basics can be troublesome, but it is important,” he said.