What Happens to Cryptocurrency When Your Client Dies: A Practical Guide for Estate Planners

Planning for cryptocurrency in estates has become critical in modern practice. Unlike traditional assets, digital currencies pose unique challenges you need to address. This guide covers how to handle cryptocurrency in succession plans across Australia, Canada, and the UK, including legal status, access methods, drafting considerations, recent case law, and practical safeguards.

Is Cryptocurrency Property That Can Be Inherited?

The short answer: Yes.

Courts increasingly recognize crypto assets as property forming part of the deceased's estate:

Australia: Courts have confirmed that digital assets like cryptocurrency and NFTs can be included in wills as property.

Canada: Case law holds that digital assets (from Bitcoin to in-game items) are personal property transferable by will or intestacy.

United Kingdom: The Property (Digital Assets) Bill (2024) created a third category of personal property expressly covering digital assets like crypto tokens. This ensures cryptocurrencies are unequivocally treated as inheritable property.

Tax and Valuation Implications

UK: HMRC confirms crypto holdings are subject to inheritance tax as property. They form part of the individual's estate and may trigger inheritance tax on death.

Australia and Canada: No estate or inheritance taxes apply, but crypto assets still count toward the estate's value and may have capital gains implications.

Your Duty as Executor

In all jurisdictions, executors must marshal the deceased's assets, including digital ones. However, meeting this duty for cryptocurrency is far more complicated than for bank accounts or real property.

The Unique Challenges You'll Face

Traditional estate laws haven't caught up with the technological complexities of digital assets. Here are the main obstacles:

1. The Access Problem

Crypto is secured by private keys or seed phrases known only to the owner. If those credentials die with them, the assets are lost forever. There is no bank or authority you can appeal to for recovery.

Real examples:

• Australian estates where beneficiaries knew the deceased owned Bitcoin but couldn't retrieve it without the private key
• A 2018 Canadian exchange founder who took passwords to an estimated $180 million in crypto to his grave, rendering the funds irretrievable

Without proper planning, significant wealth can vanish irreversibly.

2. The Identification Problem

Cryptocurrency is pseudonymous. Unless the owner left records, you might not even know of a crypto holding or where to find it.

Hidden digital wallets can lead to:

• Family suspicion and disputes
• Accusations of concealment
• Lost value that could have benefited the estate

Unlike a house or car, a crypto wallet cannot be discovered through standard asset searches.

3. Jurisdiction and Platform Complications

Crypto may be held on overseas exchanges or subject to provider terms of service. An exchange account is governed by a contract. The user agreement may specify that on death the account is non-transferable or that foreign law applies.

This can force you into legal processes in other jurisdictions at prohibitive cost. Even accessing a domestic exchange requires navigating the company's compliance procedure (death certificates, probate orders, etc.).

How to Secure and Pass On Access to Crypto Wallets

Your core challenge is ensuring the right people can access the crypto after the owner's death without compromising security during life. This requires balancing secrecy and accessibility.

Step 1: Create a Detailed Inventory

Your client should list:

• Types of cryptocurrency held (Bitcoin, Ethereum, etc.)
• Approximate amounts
• Where and how they're held (hardware wallet, exchange, MetaMask, etc.)
• Location of any private keys, seed phrases, wallet files, or storage devices

Critical: Do NOT include actual passwords or keys in plain text within the inventory document. This is a roadmap, not a key ring.

Step 2: Store Access Information Securely

Recommended approaches:

Digital vault method: Provide your clients encrypted vaults such as BePrepared to store keys, passwords, and PINs. Arrange for the executor to receive the master password upon death. This is considered prudent because it avoids openly sharing a long list of logins.

Physical storage: Write down the seed phrase and store it in a safety deposit box. Reference this location in the will or letter of instructions.

Step 3: Never Put Keys in the Will

This is critical. Wills become public record once admitted to probate. Embedding sensitive digital access information there is a serious security risk.

Better practice: The will should reference an external document or vault. For example: "My executor shall have access to a memorandum I have left detailing my digital assets and instructions for accessing them."

Keep the actual keys in a separate confidential document or encrypted file outside the will.

Step 4: Plan for Speed

Time is often of the essence. Crypto values are highly volatile. Instruct your executors how to access the deceased's crypto quickly if needed, so they can secure the assets or convert them to a more stable form during administration.

Delays in probate or hesitancy could result in large value swings.

How to Draft Wills, Trusts, and POAs for Crypto Assets

You need to adapt your standard drafting practices to properly account for digital assets.

Wills: Include a Digital Assets Clause

Grant your executor explicit authority over digital assets, including cryptocurrency wallets and accounts.

What this clause should authorize:

• Bypassing or resetting passwords
• Retrieving data or funds from online providers
• Taking any action necessary to transfer or safeguard digital assets

Without such a clause, your executor's authority might be questioned by service providers.

Specify beneficiaries clearly: State who should receive the cryptocurrency and under what conditions. Because crypto values fluctuate, consider adding language about how to deal with significant price changes between death and distribution.

Storage of Documents

Keep the will and any separate digital asset instruction letter together in a secure location (with you as the lawyer or in a safe). The executor finds everything in one place.

Naming a tech-savvy helper: In jurisdictions where a "digital executor" isn't officially recognized by law, you can still name someone (perhaps the primary executor or an advisor) who is tech-savvy to assist with digital aspects of the estate.

Trusts: Consider for Smoother Transitions

Holding cryptocurrency in a trust can facilitate transfers:

Revocable living trust: Upon the settlor's death, the successor trustee can continue managing assets without probate. This keeps the transfer private and possibly faster.

Digital asset trust: Some advisors recommend trusts specifically for managing and distributing digital holdings.

Note: Transferring crypto into a trust means the trustee must be given the keys or custody, which requires careful execution and trust in the trustee.

Powers of Attorney: Don't Forget Incapacity Planning

Your client's enduring power of attorney (Australia/Canada) or lasting power of attorney (UK) should authorize the attorney to handle digital assets during incapacity.

Why this matters: If a client becomes seriously ill or unable to manage affairs, someone needs legal power to access crypto wallets to manage or secure them.

Update standard templates: Standard POA forms might not explicitly mention digital assets. Add language to grant powers to access computers, online accounts, and crypto wallets.

Current Case Law and Emerging Guidance

The law is evolving. Stay alert to new developments in your jurisdiction:

Australia

Current status: Courts have cemented cryptocurrencies' status as property that can be dealt with in wills. However, succession statutes haven't been updated, leading to uncertainty around access and control.

What's coming: The NSW Law Reform Commission has proposed a comprehensive digital assets regime, including a legally recognized role for a "digital executor."

Regulatory warnings: ASIC and the Financial Planning Association have published case studies highlighting estates locked out of valuable digital accounts due to lack of planning.

Canada

Current status: No province has enacted dedicated digital assets succession law, but courts have been pragmatic, applying existing property and contract law. Case law confirms cryptocurrencies are assets that can transmit on death.

What's coming: The Uniform Law Conference of Canada is working on a Uniform Act to address fiduciary access to digital assets, which would give executors clearer legal rights to obtain digital data from custodians.

Current practice: Canadian executors sometimes must resort to courts for orders, especially with foreign service providers. Use robust will clauses and client instructions in the meantime.

United Kingdom

Current status: Building on cases like AA v Persons Unknown (2019), which recognized Bitcoin as property, the Law Commission published recommendations that led to the Property (Digital Assets) Bill.

Tax treatment: HMRC has issued guidance treating crypto like investment property for valuation and tax calculations. Cryptocurrency is situated where the owner is resident, which affects inheritance tax.

The problem: Law firms report that as few as 7% of wills currently mention digital assets, suggesting many estates are unprepared.

What's coming: More formal guidance and possibly new services like e-wallet providers offering legacy contact features.

Your Action Checklist: Best Practices for Estate Planners

Incorporate these steps into your practice:

1. Inventory and Document Assets

Work with clients to create a comprehensive list of all digital assets and accounts. Include all cryptocurrency holdings, wallets (hardware, software, exchange accounts), and related assets like NFTs. Record where assets are held and how they can be accessed (but not the sensitive keys themselves). Keep this inventory updated.

2. Advise on Secure Storage for Keys

Discuss secure ways to store private keys, seed phrases, and passwords. Options include encrypted password managers, digital vaults, sealed paper records in a safe, or splitting keys among trusted parties. Ensure the executor knows how to retrieve these credentials when needed.

3. Warn Against Passwords in Wills

Caution clients never to write account passwords or private keys directly into a will. The will can reference a separate confidential document or repository.

4. Include Digital Asset Clauses

Update estate planning documents to explicitly address digital property. Draft will clauses authorizing the executor to access and manage digital assets. Include provisions in powers of attorney giving agents authority over digital assets during incapacity. If using a trust, ensure it's empowered to hold and deal with crypto.

5. Consider Naming a Digital Expert

Where appropriate, name a "digital executor" or advisor in the will (even if not a formal legal role). This person can assist with recovering and transferring crypto. At minimum, ensure the primary executor is aware of their duties concerning digital assets.

6. Research Platform Policies

If your client uses cryptocurrency exchanges or online wallets, research those platforms' policies for death. Some exchanges have next-of-kin procedures. Note the existence of such accounts and any instructions in the estate plan.

7. Consider Trusts for Large Holdings

For significant crypto assets, discuss whether an inter vivos trust or holding company makes sense. Transferring crypto into a trust during life can avoid probate entirely and allow a successor trustee immediate access upon death. Weigh the technical and tax implications.

8. Encourage Communication (Not Keys) to Family

Advise clients to let their executors or family know that they have digital assets and that plans are in place. They don't need to share private keys or exact wealth details in advance. Simply knowing "I have some cryptocurrency and my important information is stored safely in X location" can prevent panic or disputes later.

9. Schedule Regular Reviews

Digital assets are fast-evolving. Clients might acquire new types of coins, move funds to new wallets, or changes in law might enable better strategies. Encourage periodic reviews to ensure the inventory is up to date and instructions still reflect their wishes. Stay informed on new laws or services that could benefit your clients.

The Bottom Line

Without proper planning, cryptocurrency can be lost forever or entangled in legal disputes when your client dies. The decentralized, password-protected nature of these assets means that standard succession principles are hard to enforce without special preparation.

Your role is critical: Ensure clients catalog their digital assets, secure the means of access, and incorporate clear instructions and authorizations in their wills, trusts, and powers of attorney.

Emerging case law and legislation are gradually providing more certainty. Courts are affirming that crypto is inheritable property, and proposed statutes are granting executors defined rights to digital accounts. Until these frameworks fully mature, however, you must rely on savvy planning and client education.

By taking action now, you can prevent scenarios where valuable cryptocurrencies are irrevocably lost or families are mired in conflict over digital wealth. With thoughtful estate planning, cryptocurrency can be passed on smoothly to the next generation, honoring your client's wishes and preserving value for their beneficiaries.

What happens to cryptocurrency when a person dies will depend largely on what preparations were made. With proper guidance, you can ensure a secure, lawful transfer to those left behind rather than a digital dead end.

Your planning today protects your client's digital legacy tomorrow.

‍

This guide is not legal advice. Always verify current laws, platform terms, and practice directions before relying on any information provided here.