Bequeathing Bitcoin: Storing and Transferring Cryptocurrency upon Death

The article discusses the unique challenges of inheriting cryptocurrency, illustrated by the case of Zev Merchant, an early Bitcoin adopter. After Zev’s untimely death in 2022, his wife faced significant difficulties accessing his cryptocurrency due to the lack of preparation for digital estate management. Zev’s reliance on centralized wallets and digital tools left his assets vulnerable to access and security issues, emphasizing the importance of proactive estate planning for digital assets.

Inheriting cryptocurrency presents several hurdles for heirs, including access issues, complex probate procedures, and security risks. Cryptocurrencies are bearer assets, meaning ownership is determined by possession of private keys or credentials. If these are lost, the assets are often unrecoverable. Additionally, the probate process for digital assets can be complicated, and security risks arise from custody decisions, such as relying on centralized or decentralized wallets.

The growing popularity of cryptocurrency highlights the urgency of addressing these issues in estate planning. As of 2024, 40% of Americans own cryptocurrency, with significant adoption among Gen X. However, many legal and financial professionals lack the expertise to guide clients on incorporating cryptocurrency into estate plans.

Cryptocurrency storage options are divided into centralized and decentralized wallets, as well as hot and cold storage. Centralized wallets, such as Coinbase and Binance, offer ease of use and recoverable credentials but require users to trust custodians, which carries risks like potential misuse of funds. Decentralized wallets, such as MetaMask and Electrum, provide users with full control and anonymity but come with greater responsibility and the risk of losing access if private keys are misplaced. Hot storage, connected to the internet, allows easier access but is vulnerable to hacking, while cold storage offers better security but requires physical custody of the private key.

Effective estate planning for cryptocurrency requires tailored approaches based on custody preferences. For centralized wallets, options like legacy contact features (available on Coinbase and Kraken) or securely documenting credentials can help ensure assets are accessible to heirs. Decentralized wallet users can leverage multi-signature wallets to distribute key control among trusted parties, ensuring private keys are retrievable without compromising security. Third-party services like Bequest Finance provide innovative solutions, enabling transfer-on-death (TOD) arrangements and aligning wallets with trust and state law requirements. High-value cryptocurrency accounts may benefit from institutional services like Coinbase Institutional, though these require significant minimum balances.

The article emphasizes the importance of proactive digital estate planning, which can prevent the struggles faced by Zev Merchant’s wife. Steps such as creating inventories of digital accounts, designating beneficiaries, and leveraging secure custodial solutions can ensure that digital assets are seamlessly transferred to heirs. As cryptocurrency becomes a more prominent asset class, integrating comprehensive estate planning strategies will safeguard digital wealth and provide peace of mind for individuals and their families.

For more information see Debbie Hoffman and Anna Mouland, “Bequeathing Bitcoin: Storing and Transferring Cryptocurrency upon Death,” ABA Probate and Property Journal, November 2024.