Thought Leadership: Essential Considerations for Cryptocurrency in Estate Planning

Publisher’s note: This thought leadership article from Weaver is publicly available (no subscription required).

Digital assets are no longer on the margins of wealth management. Today, cryptocurrency represents a meaningful portion of many estates, from Bitcoin and Ethereum to non-fungible tokens (NFTs), stablecoins and illiquid tokens. According to an article published by State Street Investment Management in December 2024, 31% of high-net-worth investors hold crypto. With that shift comes a new reality: estate plans that don’t account for digital assets are incomplete.

At Weaver, we’ve seen how the growing prominence of cryptocurrency in estate planning presents both challenges and opportunities. Through proper planning, these assets can be preserved, secured and transferred according to clients’ wishes while also managing risk, tax exposure and volatility.

Why Cryptocurrency Changes the Estate Planning Conversation

Traditional wealth planning assumes that assets are held in custodial accounts such as banks, brokerages or other regulated institutions. Those assets can be located, documented and transferred through familiar legal and financial channels.

Cryptocurrency doesn’t work that way. It exists on decentralized networks, without a central administrator, and ownership depends entirely on access, a concept summarized by the saying, “Not my key, not my coin.”

That distinction makes succession planning critical. Without documented strategies for access, storage and transfer, cryptocurrency can vanish permanently upon the holder’s death or incapacity, even if beneficiaries know it exists.

Crypto asset enthusiasts commonly distrust traditional financial institutions and instruments as they prefer the ability to anonymously own and control access to wealth. The tendency toward keeping private wealth as private as possible can lead to issues when unexpected or tragic events occur. For example, our professionals regularly receive calls from family members who believe a relative held cryptocurrency in a cold wallet “somewhere.” Cold wallets are devices that can be stored in a drawer and only connect to the internet when the holder decides to initiate transactions. A cold wallet is accessible through an often long and complicated passkey. If the cold wallet or the passkey that unlocks it cannot be found, it’s comparable to having a general idea that someone buried treasure in your backyard or left a wallet full of cash somewhere. The crypto assets are worthless until the wallet can be unlocked.

This situation is not hypothetical — it’s one Weaver encountered firsthand. A client who had built a substantial cryptocurrency portfolio using a cold wallet later suffered memory loss. Inspired by early crypto pioneers, the client had designed the passkey as a scavenger hunt, hiding fragments of it across multiple locations including family homes, bank safety deposit boxes, and rented storage units. The family now faces the daunting task of piecing together these clues, hoping one day to reconstruct the full passkey. Until then, they live with the anxiety that a well-meaning donation or spring cleaning could accidentally discard a vital piece of the puzzle, permanently locking away the assets. And in the meantime, they are unable to make estate planning transfers or prepare to make a timely reporting of estate assets upon our client’s ultimate death.

Advisors are finding ways to recommend best practices that balance access and privacy considerations. Wealth managers who have the ability to secure physical copies of the passkeys to client cold wallets may suggest redundant passkey management for clients willing to sacrifice a reasonable degree of control.

The Hidden Challenges of Digital Assets in Estate Plans

As more individuals incorporate cryptocurrency into their portfolios, the mechanics of transferring and preserving these assets introduce a new layer of complexity. Beyond documenting ownership, estate plans must now address the unique risks and responsibilities that accompany digital wealth.

1. Access and security

One of the biggest hurdles is ensuring heirs can access assets without compromising security. Private keys, seed phrases and wallet credentials are the gatekeepers. If they’re lost, stolen or mismanaged, the cryptocurrency may be gone forever.

2. Valuation volatility

Weaver pays close attention to one unique challenge crypto presents for estate planning: volatility. A portfolio worth $500,000 today might swing dramatically in weeks. This creates uncertainty in estate tax calculations, equitable distribution and fiduciary responsibilities.

3. Nontraded crypto assets

Nontraded cryptocurrency assets present further challenges. It’s becoming common for executives, advisors and investors to receive crypto tokens in exchange for services or cash investments in a growing cryptocurrency-oriented business.

Those assets are often not traded on public markets. In some cases, they might be traded in a form of over-the-counter brokered transaction, but efficient and transparent markets don’t exist in most cases. You may hear these types of crypto assets referred to as off-chain assets. There is potential that one of the major public markets might list the token, but until that happens, it’s challenging to determine value. Sometimes value may only exist in the form of rights to a utility on a cryptocurrency network, or for rights to govern the affairs of the crypto venture.

There are a variety of techniques we consider when valuing private crypto assets. While the consensus on best practices to value nontraded crypto assets is not solid, some professional and industry groups contribute valuable guidance.

One technique includes IRS regulations that allow crypto assets issued as compensation to be valued based on the reasonable equivalent value of the services provided in exchange.

“When you receive cryptocurrency in exchange for property or services, and that cryptocurrency is not traded on any cryptocurrency exchange and does not have a published value, then the fair market value of the cryptocurrency received is equal to the fair market value of the property or services exchanged for the cryptocurrency when the transaction occurs,” an IRS FAQ states.  

For tokens received by investors for crypto ventures that are in development with no readily determined arm’s-length market value, we evaluate what it would take to rebuild that crypto venture at the state it was in on a particular valuation date, divided by the outstanding crypto asset capitalization. We factor in current market pricing for labor, materials, online hosting, technology assets, intellectual property stewardship expenses and all productive research, development and business infrastructure expenses. Additionally, we would remove the cash value of investments in business strategies or any activities that did not move the venture forward. Appropriate premiums to reflect opportunity cost and entrepreneurial incentive should be considered. Think of it as a build or buy decision framework.

If a forecast is available and viewed as reliable, there is the option to consider the present value of cash or cash equivalent returns from holding the crypto asset, but future cash flow modeling can be speculative and hard to support. Valuation of crypto assets using future income methods are preferred for international transfers of business assets but not generally for other purposes.

Finally, there is a growing body of knowledge and data resources to evaluate the performance of crypto assets that list or go “on-chain” to reputable trading networks. There are as many new tokens and currencies that fail as those that are listed each day, which speaks to the speculative nature of this asset class. However, we can draw inferences and observations based on the observed performance of publicly traded crypto assets on established crypto exchanges like Coinbase, as one of many examples.

When a qualified valuation is required to support estate and gift tax reporting, we consider and weigh as many methods as possible to arrive at a valuation conclusion for these very hard to value assets. Discounting is appropriate for nontraded crypto assets using variations on the methods we consider for traditional securities.

4. Tax implications

The IRS treats cryptocurrency as property, not currency. That means:

• Capital gains taxes apply to sales, trades or even purchases of goods with crypto. This is something worth mentioning to clients should they decide to pay for a family dinner, for example, at Steak ‘n Shake or any of the growing number of retailers that accept payment in crypto. Trading an appreciated crypto asset for burgers could make for an unusually expensive fast casual dinner if short-term capital gain tax is triggered.
• Estate taxes must reflect the fair market value at the moment of death. Research needs to be performed using data from one or several crypto exchanges to support the value of a crypto asset. One may find that different exchanges report meaningfully different values at the same time, so proper research and presentation of market data is important.
• Gifting strategies can be powerful during downturns, when valuations are lower or at planned “halving” events — when crypto rewards to crypto miners are reduced by 50 percent at certain intervals — or “burning” by token developers who attempt to maintain or control the value of a token by destroying a certain amount of the coin or token supply. Crypto market experts should weigh in on the best timing for gifts and transfers if clients are able to plan.

Each of these considerations requires thoughtful planning to maximize opportunities and avoid unintended tax burdens.

5. Fiduciary complexity

Selecting fiduciaries that can manage digital assets is another challenge. Executors, trustees or other representatives may not understand crypto technology or may lack the knowledge to safeguard it properly. The wrong choice can put both security and compliance at risk. An uninformed fiduciary could inadvertently compromise private keys, leading to asset loss, or fail to meet complex IRS reporting requirements, risking penalties and audits for the estate.

Best Practices for Crypto Estate Planning

Forward-thinking families and advisors are already building digital asset considerations into estate plans. Some key strategies include:

• Comprehensive documentation: Maintain an updated inventory of wallets, exchange accounts, transaction histories, keys and the existence of treasure maps. This doesn’t mean leaving sensitive information unsecured. It means designing systems for secure but accessible transfer.
• Entity and custody structures: Using limited liability corporations, trusts or corporate entities can streamline management and succession. For higher value holdings, professional custodians may provide added security and fiduciary oversight.
• Technology-enabled succession plans: Innovative solutions now exist to automate access transfer through smart contracts or multisignature wallets. These tools balance security with continuity, though they require careful implementation.

Why Professional Guidance Is Essential

The intersection of cryptocurrency and estate planning is still relatively uncharted territory. Laws are evolving, regulatory guidance continues to develop, and valuation standards are adapting in real time.

That’s why working with experienced professionals who are deeply invested in serving this evolving market is critical. Weaver guides clients through the entire process by:

• Assessing and valuing cryptocurrency holdings
• Addressing tax implications

We focus on approaches for cryptocurrency to strengthen rather than complicate client estate plans.

Looking to the Future of Estate Planning

Crypto assets are rapidly evolving, and new use cases for securitizing real-world assets using digital tokens are on the horizon. Leading asset managers are currently exploring ways traditional assets can be represented as digital assets and securitized through token issuance. For example, an appreciating asset such as a private jet could be transferred to a digital network secured by blockchain technology with fractional jet ownership interests offered as digital tokens. Those tokens could simply represent a store of value that could be securely traded on the blockchain network or perhaps offer token holders the utility of access to the jet. The same concept is being explored for artwork, fine wine, real estate, collectibles and other assets.

The future of wealth transfer is digital. As more families and institutions adopt cryptocurrency, digital assets will become as common in estate planning as real estate or marketable securities. The difference is that crypto requires specific strategies for access, security and valuation.

Failing to plan could mean permanently losing valuable assets. Thoughtful planning preserves wealth, reduces risk, and aligns clients’ legacies with their intentions.