Crypto and Digital Asset Inheritance

Concept

Crypto breaks the familiar logic of inheritance: the asset exists and is visible on-chain, yet without the private key there is no way to reach it. Heirs can hold indisputable title to a bitcoin balance and still lose it forever — simply because they do not know where the key is kept. There is no bank you can walk into with a death certificate, and no "reset password" button.

Why This Became a Problem

The scale shows in the network's own statistics: by various estimates, between 1.8 and 3.7 million bitcoin — roughly 10–18% of all coins ever issued — are considered permanently lost, and the main reason is precisely the loss of keys. Some of those coins belonged to early holders who never thought of a wallet as something to bequeath; others vanished together with owners who left neither keys nor instructions.

The loudest case is the Canadian exchange QuadrigaCX. After founder Gerald Cotten died in December 2018, the platform said that only he held the keys to the cold wallets, and roughly C$190 million belonging to 76,000 customers was locked away. A later investigation found that a significant part of the money had already been withdrawn during his lifetime and that the exchange itself had operated like a pyramid — but as a symbol of "single point of failure" risk the story has become a textbook example. At an everyday level the risk is the same: the programmer Stefan Thomas has for years been unable to recall the password to an encrypted drive holding 7,002 BTC.

Two Tasks: Title and Access

Legally, in most countries crypto is property: it falls into the estate, passes by will or by law, and is taxed like any ordinary asset. But a right on paper only works together with technical access to the wallet. Access without formal title is dangerous too: an heir who receives the key "informally, within the family" risks accusations of misappropriation, while whoever holds the keys faces claims from the other beneficiaries.

How Access Is Transferred

The approaches range from multisignature (multisig), where the keys are split among several trusted people, to a "dead-man's switch" timer that opens access after a long silence from the owner, and custodian services. One rule overrides the rest: the seed phrase must never be written into the text of the will — once probate opens, the will becomes a public document and anyone can read the key.

Legal Status and Probate

Most countries' tax authorities treat cryptocurrency as property. In the United States this is fixed by IRS guidance (Notice 2014-21); in Russia, by Federal Law No. 418-FZ, under which digital currency has been officially recognised as property since 1 January 2025. Property status means crypto falls into the estate and passes to heirs under the general rules — with all the usual probate timelines and formalities.

For exchange-held (custodial) assets there is a procedure. In the United States, inheritance access is governed by the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), enacted in 46 states: it obliges a custodian, including a crypto exchange, to honour a lawful request from an executor. For a self-custodied wallet there is no procedure — the law grants the right but does not hand over the key. A separate difficulty arises when wallets and accounts are scattered across jurisdictions and parallel wills are opened for them (see Multi-Jurisdiction Wills).

Custodial and Inheritance Services

Between "everything on the exchange" and "the key only in your head" lies a whole spectrum of solutions. Exchanges and qualified custodians (Coinbase, Kraken, BitGo, Anchorage) take custody on themselves and offer heirs a clear procedure, but add counterparty risk. Collaborative-custody services — Casa, Unchained, Nunchuk — distribute multisig keys among the owner, the service and a trusted person (a role close to that of a protector in a trust, see Trustee and Protector), so no single party moves the funds alone and no single lost key is fatal. Hardware-wallet makers add "inheritance" kits with backup keys. The choice comes down to a balance between convenience and trust in the intermediary.

Structuring

For large portfolios, crypto is increasingly "wrapped" into a foundation, trust or company: this gives clear key management, continuity and a defined tax and legal status instead of a scatter of wallets across different exchanges. A classic trust (settlor — trustee — beneficiary) works, as does a personal foundation, or an asset protection trust to shield assets from creditors.

Taxes on Inheritance

Inheriting crypto itself is not taxed in Russia — inheritances are exempt from personal income tax (NDFL). Tax arises later, on sale: from 2025, income from disposing of digital currency is subject to NDFL at a rate of 13–15%. If the crypto is held through a foreign company or foundation, CFC rules kick in, with their own logic for declaring undistributed profit (see Trusts and CFC and CFC).

In the United States, inherited crypto gets a step-up in basis: its "tax cost" for the heir is raised to market value at the date of death, and the gain accumulated during the owner's lifetime escapes capital gains tax. But large estates fall under the federal estate tax, from which the first $15 million is exempt starting in 2026. Volatility adds complexity: the coin price at the date of death, on which the tax is calculated, can diverge sharply from the price at a later sale.