Crypto Inheritance Tax: What Happens to Digital Assets When You Die
What happens to Bitcoin, Ethereum, and other crypto when you die? Estate tax rules, step-up in basis, executor duties, and how to document crypto for heirs.
Crypto and Death: An Underappreciated Tax Event
Cryptocurrency creates unique challenges at death that traditional assets don't. A stock portfolio at Fidelity has a clear custodian who will work with your estate. Bitcoin on a hardware wallet, by contrast, can be permanently lost if no one knows the seed phrase. Beyond the practical access problem, there are significant tax implications that anyone with meaningful crypto holdings needs to understand — for both planning purposes and for heirs trying to settle an estate.
Step-Up in Cost Basis at Death
Under IRC Section 1014, assets inherited at death receive a "step-up" in cost basis to the fair market value on the date of death (or the alternate valuation date, six months later, if the executor elects it). This is one of the most valuable provisions in the tax code for appreciated assets.
For crypto, the step-up is significant: if you bought 10 BTC at $5,000 each ($50,000 total) and they're worth $600,000 at your death, your heir inherits them with a cost basis of $600,000 — not $50,000. If the heir immediately sells, there is zero capital gains tax on the $550,000 of appreciation that occurred during your lifetime.
Key points about the step-up:
- It applies to all inherited crypto, not just Bitcoin
- It applies to the FMV on the date of death, regardless of what happens to prices after
- If prices fall after death and the alternate valuation date is used, the heir's basis is the lower FMV six months post-death
- Assets given as gifts during life do not receive a step-up — the recipient takes the donor's original cost basis
Federal Estate Tax
The federal estate tax applies to estates exceeding the exemption threshold — $13.99 million per individual in 2026 ($27.98 million for married couples with proper planning). Crypto is included in the gross estate at FMV on the date of death.
The estate tax rate is 40% on amounts above the exemption. For most Americans, the estate tax is not an issue. However, the current elevated exemption is scheduled to sunset after 2025 under the Tax Cuts and Jobs Act provisions, potentially reverting to roughly $7 million per individual (indexed for inflation). If you have significant crypto holdings, work with an estate planning attorney before the potential exemption reduction.
State estate taxes exist in about 12 states with lower exemption thresholds. Check your state's rules separately.
Executor Responsibilities for Crypto
If you're named executor of an estate that includes cryptocurrency, your responsibilities are more complex than for traditional assets:
- Locate all wallets and exchange accounts — the deceased may have had hardware wallets, paper wallets, software wallets, and accounts on multiple exchanges. Without seed phrases or private keys, crypto can be permanently inaccessible.
- Secure access immediately — don't wait. Hardware wallets can be lost; exchanges may require court orders to access accounts of the deceased.
- Document FMV on date of death — for each crypto asset in the estate, record the price on the date of death. Reputable price sources (CoinGecko, Coinbase) or a crypto tax platform can generate a date-specific valuation report.
- File Form 706 if the estate exceeds the federal exemption — crypto is listed at FMV on Schedule F (Other Miscellaneous Property).
- Obtain an EIN for the estate if the estate will hold crypto and generate income (staking rewards, interest) before distribution — that income is taxable to the estate.
Income in Respect of a Decedent (IRD)
One exception to the step-up rule: Income in Respect of a Decedent (IRD) under IRC Section 691. IRD is income the deceased had a right to receive but hadn't yet recognized before death. For crypto, this could include unclaimed staking rewards, mining income earned but not yet received, or exchange account yields that had accrued but not yet been credited.
IRD does not receive a step-up in basis — it's taxable to the heir as ordinary income when received, just as it would have been to the decedent. The heir may take a deduction for estate taxes attributable to the IRD.
Documenting Crypto for Your Heirs
The most important thing you can do today is create a crypto inheritance document that gives your executor and heirs everything they need. This document should:
- List every wallet address (public keys are fine to write down — never write private keys in a will, which becomes public)
- List every exchange account with login instructions or reference to where credentials are stored
- Explain how to access hardware wallets (which device, where it's stored)
- Store seed phrases separately, securely, and redundantly (fireproof safe, safety deposit box, or a professional cryptographic inheritance service)
- Name a technically capable person who can help the executor — most estate attorneys and accountants are not familiar with crypto wallets
Consider services like Casa, Unchained, or Ledger Recover for custody-assisted inheritance planning. Do not rely on a single point of failure for seed phrase storage.
Gifting Crypto vs. Inheriting Crypto
Because inherited crypto receives a step-up in basis and gifted crypto does not, it is often more tax-efficient to hold appreciated crypto until death rather than gifting it. If you gift 10 BTC with a $50,000 cost basis, the recipient inherits your $50,000 basis — all future appreciation is taxable to them. If instead you hold until death, the full appreciation disappears from the tax base.
The gift tax annual exclusion ($18,000 per recipient in 2026) allows tax-free gifts of crypto up to that amount. Gifts above the exclusion use your lifetime exemption but are not immediately taxable unless your lifetime gifts exceed the exemption threshold.
Plan Ahead with Blockchain Smart Tax
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