Justia Lawyer Rating
Federal Bar Association
Google Reviews
Expertise - Best Tax Attorneys in San Francisco 2022
Super Lawyers Rising Stars
Top 3 Tax Attorney In San Francisco

Estate Planning with Crypto and NFTs

Estate planning with cryptocurrency and NFTs presents unique challenges because the rules that determine how assets pass after death are geared toward more conventional assets. 

In California, most estate plans are geared to avoid probate administration, which is a legal proceeding that winds up a person’s legal and financial affairs after death. The two primary goals of probate are to (1) pay off creditors, and (2) distribute the remaining property to legal heirs or beneficiaries named in a will.  

Most estates want to avoid the hassle and high costs of probate by having their assets titled in a living trust (sometimes referred to as a “revocable trust” or “intervivos trust”). Assets titled in the name of a living trust avoid probate because when the first trustee (who is also the trust’s creator) dies, the trust document names a successor trustee who will take control of the assets in the trust without a court order. 

So how can the living trust prepared by a crypto estate planning attorney ensure crypto and NFTs avoid a full-blown probate? Let’s break that down into three categories: 
  • crypto held on a hardware wallet
  • crypto held in a centralized exchange (e.g. Coinbase, Kraken, FTX)
  • crypto held in DeFi, a decentralized exchange, or liquidity pool
1. Crypto held on a hardware wallet

For estate planning purposes, cryptocurrency held in a hardware wallet is most comparable to cash or gold held in a safe: the only person who can access it is the person who knows where it is and the combination.  

Unlike real property, bank accounts, or investment accounts, cryptocurrency stored in a hardware wallet is not titled in any individual’s name. Rather, the ability to access that property is determined based on whether an individual has access to the wallet and understands how to access it via the private key.  

Bottom line, the trust’s settlor needs to provide clear instructions to their successor trustee on how to access their hardware wallet, such as:
  • Type and print detailed instructions on how to access your wallet and store it in a fireproof safe along with a copy of your trust.
  • Put a safe deposit box in the name of your living trust.  Store instructions on how to access your wallet in it.  
  • Maintain your crypto on a multi-signature wallet that only your successor trustee and one other trusted party has keys to. 
There are also custody services that can maintain this information for you. However, they are young in their existence and some may see them as defeating the purpose of maintaining their crypto offline. 

2. Crypto held in a centralized exchange

Centralized exchanges do not yet offer the ability to maintain joint accounts, name beneficiaries, or title your account in the name of your trust.  An exchange will not simply surrender your account to your successor trustee without a court order.  

Therefore, the only way to skirt probate and stay within terms of service is to draw your exchange-based crypto into your trust via a Heggstad petition (discussed more in California Estate Planning Laws). That is, list it in your trust document and then hope the rules change to something more efficient before you die. 

Some may be tempted to save their individual login information and pass that along to their trustee. Then, the trustee can just login and transfer everything out to a new account or hardware wallet as a part of the trust administration.

Easy, right? Wrong! 

You cannot access a dead person’s account without the appropriate authority, and this will unquestionably violate the exchange’s terms of service, which may result in the account being frozen. Then you’re back at square one, looking for a court order, and hopefully some resource to abate any penalty incurred. 

3. DeFi, liquidity pools and everything else

Here, we’re in a similar situation as crypto held on a hardware wallet. Essentially, you need to keep complete records of everywhere you are storing your crypto with some regularity, otherwise your trustee will not know where to go looking.  

Since staking, DeFi, and liquidity pools vary greatly, the best solution here would be to keep a general log of your activities and maintain any and all access information in whatever manner you see as most secure. That could be as simple as a written journal in a safe, or a password-protected hard drive you store in a secure location.  

Bottom line, as a practical matter, your trustee needs to know where to find it and how to access it. 

Crypto and NFT Estate Plans

Traditional estate planning has yet to catch up to crypto, DeFi, NFTs, and blockchain-based digital assets. The best way to ensure your assets will be passed on to your loved ones is to make an estate plan and keep all your information up to date. 

Contact the crypto estate planning attorneys at Kugelman Law today to discuss how best to protect your crypto and NFT assets.  
Client Reviews
Alexander helped me break down my tax situation and used his expertise to figure out the next actionable steps, make sure that all the bases were covered (that I wasn't aware even existed), and confirm that things were done correctly. If you are confused and stuck in a difficult tax situation, Alexander will guide you forward and help you confidently resolve the issue. Henry Wang
If you are having tax trouble, Alexander is the one to help you. He was very professional, personable, and easy to reach. His explanation of the entire process is helpful for easing the stress that is associated with tax trouble. We never felt intimidated or out of the loop while working with him. The process was handled to our liking and we are satisfied with the results. Even the after care has been phenomenal! Tony W.
If anyone out there is in need of stellar legal tax assistance, look no further and contact Alexander Kugelman. He helped me tremendously with my tax situation and is always there to help when needed. If I can give Alexander more stars, I would because 5 stars is not enough! Thank you for everything, Alex!!! Flo Lauzon
Alexander has been a life saver! I got dragged into some serious IRS issues with a complicated foreign assignment component, which included divorce. Alexander has been working with me to resolve directly with the IRS. Alexander is detail oriented, responsive and I trust him to guide me. I will be using Alexander for all tax related matters from now on! He is stuck with me forever. Eve T.
Alexander helped me understand the IRS audit process and prepared my response. There were certain records that I had lost, but he suggested alternatives that the IRS accepted. Even better, he showed up at the audit for me and I never actually had to talk with the IRS. I didn't have to pay any penalties. I'd definitely recommend hiring Alexander to deal with an IRS issue. L.R.