Taxes, estate and legal · Overview

Bitcoin estate planning.
How to pass Bitcoin without losing it.

READ9 min·UPDATED·APPLIES TOUnited States·LEVELIntermediate
For Bitcoin holders doing estate/inheritance planning. Sources are listed at the bottom of the page; check their dates before acting.

Bitcoin estate planning is different from traditional asset planning. A lost seed phraseSeed phraseA wallet backup written as a list of words, usually 12 or 24, that can recreate the wallet's private keys. In a single-signature wallet, anyone who sees it can take the bitcoin unless a separate passphrase also protects it. Keep it offline and private; recovery may also need the passphrase and wallet setup details.Full definition means lost Bitcoin forever. Plan how heirs can recover the coins without compromising your control today.

Tax treatment in this page (stepped-up basisStepped-up basisThe tax rule that resets an inherited asset's cost basis to its market value on the date the owner died. If Bitcoin bought for $5,000 is worth $100,000 at death, the heir's basis is $100,000, so the lifetime gain is never taxed as a capital gain. Traditional IRAs and 401(k)s get no step-up.Full definition, IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition inheritance) reflects US federal rules. The custody mechanics (multisig, seed-phrase storage) apply globally. Outside the US? The priority order is the same, the account names differ (ISAIndividual Savings Account (ISA)A UK tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition in the UK, TFSATax-Free Savings Account (TFSA)A Canadian tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition/RRSPRegistered Retirement Savings Plan (RRSP)A Canadian tax-deferred retirement account; contributions reduce taxable income and growth is tax-deferred until withdrawal.Full definition in Canada, Super in Australia, etc.).

Tax-year figures. Limits, brackets and thresholds on this page are for the tax year named next to them. They change every year.

Short answer

Traditional estate planning assumes your bank cooperates with your heirs. Bitcoin assumes the opposite: only the seed phrase grants access. Heirs need the seed phrase, but if they have it now you have given up control. The solution is a multisig wallet where any 2 of 3 keys can move funds, paired with an inheritance letter that explains the mechanics in plain English. Self-custodied Bitcoin also receives stepped-up basis at death, making it potentially the most tax-efficient asset class to pass to heirs.

Your heirs need three things: knowledge that Bitcoin exists, instructions on how to access it, and the ability to do so. The best setups separate these elements so no single person (or document) can steal the funds, but your family can recover them together.

On this page
  1. Section 1 · Why Bitcoin estate planning is different
  2. Section 2 · The four methods
  3. Bitcoin held inside a trust
  4. Section 3 · What not to do
  5. Section 4 · Tax treatment for heirs
  6. Section 5 · Bitcoin in an IRA: different rules

Section 1 · Why Bitcoin estate planning is different

TRADITIONAL ASSETS
  • A bank, brokerage, or insurer holds the asset.
  • BeneficiarybeneficiaryThe person or entity you name to receive an account or insurance policy when you die. designations or probateprobateThe court-supervised process of validating a will, paying debts, and distributing assets after death. Slow, costly, and public.Full definition direct the transfer to heirs.
  • The institution cooperates because law requires it.
  • Heirs need a death certificate and proof of identity, not your password.
SELF-CUSTODIED BITCOIN
  • No institution holds the asset.
  • No company can be compelled to transfer it to heirs.
  • The seed phrase is the only path to the Bitcoin.
  • If heirs lack the seed phrase, the Bitcoin is permanently inaccessible.
  • If heirs have the seed phrase now, they have full access immediately.
THE CORE TENSION

Security requires secrecy. Inheritance requires disclosure. These two requirements conflict directly. Every estate planning method below is a different way to resolve this conflict.

Section 2 · The four methods

METHOD 1 · DOCUMENTED SEED-PHRASE STORAGE

Write the seed phrase on metal (not paper; fire and water destroy paper backups). Store it somewhere your executor knows about but your heirs do not learn until you die.

Locations to consider:

  • Safe deposit box (with executor as deputy or co-signer)
  • Home safe with combination given only to executor
  • With an estate attorney in a sealed envelope

Risk: the person who knows the location is trusted with everything. Choose carefully. A dishonest executor can move the Bitcoin to themselves with no recourse.

METHOD 2 · MULTI-SIGNATURE (MULTISIG)

A multisig wallet requires multiple seed phrases to authorize a transaction. The standard inheritance structure is 2-of-3: three keys exist, any two can move the Bitcoin.

  • You hold key 1.
  • A trusted family member holds key 2.
  • An estate attorney or institution holds key 3.

During your life: you control key 1 and need one other to transact. No single person has full access.

At death: heirs with key 2 plus the attorney with key 3 can access funds.

Setup options: Unchained (collaborative custody, US-based), Casa (concierge service), Sparrow Wallet (self-managed, open source), Bitkey (Block Inc., 2-of-3 with hardware + phone + recovery service) ×DON'T TRUST, VERIFYClaim: Major collaborative-custody multisig services as of 2026.Verify at: unchained.com ↗ · keys.casa ↗ · sparrowwallet.com ↗ · bitkey.world ↗ Source 1 in the list belowService availability and pricing change. Sparrow is open-source and free; Unchained and Casa charge subscription fees; Bitkey uses a hardware-plus-app model..

For a full walkthrough of the key distribution, PSBT signing flow, and recovery testing, see the Multisig Deep Dive.

Variant: Shamir share splitting. Shamir rebuilds a single seed from the shares at recovery time; multisig never needs one seed to exist in one place. Use Shamir's Secret Sharing (supported by Trezor via SLIP-39)[6] to split your seed into multiple shares. Example: 3 shares created, any 2 required to recover. Give one to a spouse, one to a lawyer, one to a sibling. No single share is useful alone.

METHOD 3 · TIME-LOCKED SEED DISCLOSURE

Store the seed phrase with a service that releases it after a confirmed death or after a period of inactivity from you. As of 2026, no perfect commercial service exists for this.

Dead-man's-switch approach: set up an encrypted email or document that is automatically released if you do not check in within a defined period (services like Dead Man's Switch, Letter to a Friend, or self-hosted alternatives). Requires disciplined maintenance. Single point of failure if the service shuts down or your check-in routine breaks.

METHOD 4 · INHERITANCE LETTER WITH INSTRUCTIONS

A "letter of instruction" stored with your will explains:

  • What Bitcoin you hold (approximate amount)
  • Where the hardware wallet is physically located
  • How to access the seed phrase (which method above you used)
  • Step-by-step instructions for your specific hardware-wallet model
  • Who to contact for technical help (a trusted Bitcoiner friend, an estate attorney with cryptocurrency experience)
  • Warning: do not share the seed phrase by phone or digital channel under any circumstances, no matter what someone claims

Leave a letter (with your will or trusted person) that explains: what Bitcoin is, that you own some, and where to find the recovery instructions. Do not include the seed phrase in the letter.

This is not a replacement for methods 1-3. It supplements them with operational instructions for heirs who may have never used a hardware wallet.

Engraving-style illustration of an inheritance kit: a wax-sealed envelope, a steel seed backup plate, a folded letter of instructions and a boxed hardware wallet.
What an heir actually receives: the key material, the device and a plain-language letter explaining what to do with them. Without the letter, the rest is a puzzle.

Bitcoin held inside a trust

A revocable living trust can hold Bitcoin the same way it holds brokerage accounts, a house, or a business interest. The trust document names the trustee and successor trustees, and the trust owns the assets on paper. At death, the successor trustee takes over without probateprobateThe court-supervised process of validating a will, paying debts, and distributing assets after death. Slow, costly, and public.Full definition, which is the point.

The coordination problem is what makes Bitcoin different. Funding a trust with a brokerage account is a retitling exercise. Funding a trust with self-custody Bitcoin means the successor trustee needs two things: legal authority under the trust instrument, and physical or technical access to the seed phrase or hardware wallet. Either one alone is useless. A trust document that says "the trustee has authority over the Bitcoin wallet at xpub.." does nothing if nobody can find the seed. A seed phrase in a drawer without a trust gives whoever finds it full control, regardless of what your will says.

Practical patterns: multisig where one key is held by the attorney who drafted the trust; a collaborative-custody service (Casa, Unchained) that recognizes the trust and has its own key; or Shamir shares distributed across trustee and successor trustees with a sealed letter of instruction kept with the trust. See Wills and Trusts for the trust mechanics themselves (revocable vs. irrevocable, funding, successor trustee selection, state-specific considerations), Power of Attorney for the incapacity-before-death case, and Beneficiary Designations for the non-trust parts of the estate (IRAs, 401(k)s, life insurance) that pass outside the trust entirely.

Section 3 · What not to do

  • Never store the seed phrase digitally. Not in email, iCloud, Dropbox, Google Drive, notes apps, or password managers. Cloud storage is a target.
  • Never take a photo of the seed phrase. Phone backups sync photos to cloud automatically.
  • Never share the seed phrase before death unless using multisig (where partial keys are explicit by design).
  • Never assume your executor knows what Bitcoin is. Most executors have never used a hardware wallet. The instruction letter exists for them.
  • Never leave Bitcoin on an exchange as an estate plan. Exchanges can freeze accounts during estate processes; some refuse to release without specific legal documentation that varies by state.

Three setups that fail heirs:

Seed phrase in a drawer

Anyone who finds it owns your Bitcoin. Cleaners, guests, burglars, estate attorneys. Zero protection.

Seed phrase in a safe deposit box

Slightly better, but the bank can be compelled to open it, and heirs may not even know it exists. Single point of failure.

Telling nobody

An estimated 3-4 million BTCBitcoin (BTC)The ticker symbol for Bitcoin, used on exchanges and in price quotes.Full definition are already permanently lost.[7] Don't add yours to the pile.

A hardware wallet sealed inside a dusty glass case with no latch or keyhole.
Without a seed backup and instructions an heir can follow, self-custodied bitcoin stays on the ledger but nobody can move it. An estimated 3-4 million BTC are already permanently lost.

Section 4 · Tax treatment for heirs

Bitcoin held in self-custody at death receives a stepped-up cost basiscost basisWhat you originally paid for an asset. Used to calculate how much profit (or loss) you made when you sell.Full definition equal to its fair market value on the date of death ×DON'T TRUST, VERIFYClaim: Inherited cryptocurrency receives stepped-up basis under US federal tax rules.Verify at: IRS FAQ on virtual currency ↗ · IRS Pub 559: Survivors, Executors, and Administrators ↗ Source 2 in the list belowInherited property generally takes a stepped-up basis under IRC Section 1014; the IRS treats virtual currency as property, so the same rule applies..

EXAMPLE
  • You bought 1 BTCBitcoin (BTC)The ticker symbol for Bitcoin, used on exchanges and in price quotes.Full definition for $5,000.
  • At your death, that BTC is worth $200,000.
  • Heir's basis is $200,000 (the date-of-death value), not $5,000.
  • Heir sells immediately at $200,000: zero capital gainscapital gainsThe profit from selling an asset for more than you paid for it. Taxed differently depending on how long you held the asset. tax.
  • Heir sells later at $250,000: capital gains on only the $50,000 appreciation since inheritance.

For appreciated Bitcoin, this stepped-up basis can make self-custodied Bitcoin one of the most tax-efficient assets to pass to heirs. The opposite is also true: if Bitcoin has fallen in value at death, the stepped-down basis means heirs cannot use the loss.

Estate exemption (2026): $15M per person ($30M married). Below that, no federal estate tax. Bitcoin valued at date of death. ×DON'T TRUST, VERIFYClaim: The 2026 federal basic exclusion amount is $15,000,000 per person.Verify at: IRS: What's new, estate and gift tax ↗ Source 3 in the list belowThe exclusion is per person; a married couple can shelter twice the amount with portability. The IRS adjusts it for inflation each year. For how the exemption level got here, see TCJA Sunset.

Section 5 · Bitcoin in an IRA: different rules

Bitcoin held in a Bitcoin ETFExchange-Traded Fund (ETF)A basket of investments (stocks, bonds, or Bitcoin) that trades on a stock exchange like a single share. (IBIT, FBTC, etc.) inside a Roth IRA, or in a self-directed Bitcoin IRA, follows the rules for inherited retirement accounts. It does NOT receive stepped-up basis.

Inherited IRA rules (post-SECURE Act):

  • Most non-spouse beneficiaries must withdraw the entire account within 10 years ×DON'T TRUST, VERIFYClaim: Most non-spouse IRA beneficiaries must drain inherited accounts within 10 years.Verify at: IRS RMD FAQ ↗ Source 4 in the list belowSECURE Act of 2019 introduced the 10-year rule for most non-spouse beneficiaries. Spouse, minor children, disabled, chronically ill, and not-more-than-10-years-younger beneficiaries are exempted (eligible designated beneficiaries)..
  • Roth IRA distributions remain tax-free; Traditional IRA distributions are taxed as ordinary income to the heir.
  • The "stretch IRA" pre-2020 strategy (taking distributions over the heir's lifetime) is gone for most beneficiaries.

The estate-planning trade-off:

Bitcoin ETF in Roth IRA: Roth tax treatment, no self-custody, no seed phrase, inherited as Roth IRA (still tax-free withdrawals but 10-year drain).
Self-directed IRA with Bitcoin: Traditional or Roth tax treatment available, Bitcoin in custody of a specialized custodian (not true self-custody), higher fees, more complex.
Self-custodied Bitcoin (not in an IRA): No contribution limits, capital gains tax on sale during life, stepped-up basis at death, full sovereignty.

For a long-term holder planning to leave Bitcoin to heirs: self-custodied Bitcoin with stepped-up basis can be more valuable to heirs than Bitcoin in an IRA that generates ordinary income tax (Traditional) or has a 10-year withdrawal mandate (Roth) on death. Run the numbers for your specific situation; the answer depends on your tax bracket, your heir's tax bracket, and the holding period.

KEY TAKEAWAY

The best inheritance plan is one that works even if your heirs know nothing about Bitcoin today. They need: a letter telling them Bitcoin exists, a trusted contact who can help, and a recovery mechanism that doesn't depend on a single piece of paper. Set this up now, not later.

RELATED PAGES
Hardware Wallets · the device tier Seed Phrase Rules · storage best practices Custody Levels · from exchange to multisig Wills and Estate Planning · the broader picture Bitcoin Inheritance · legacy planning overview TCJA Sunset · estate-exemption window Collaborative Custody · and Bitcoin inheritance Wills and Trusts · revocable living trust mechanics Power of Attorney · the incapacity-before-death case Beneficiary Designations · IRA, 401(k), life insurance pass-through Stepped-Up Basis · why holding until death matters Multisig Deep Dive · the technical layer under inheritance multisig Exit Strategy · sell conditions, withdrawal ordering, the "never sell" option

Where to go from here

Do next

Will vs Trust

Decide whether a trust or a will better fits your Bitcoin inheritance plan.

Read next

Multisig Custody Compared

Compare the specific multisig setups behind the 2-of-3 plan this page describes.

Explore further

Sources

Bracketed numbers and verify badges in the text link to these sources. Figures, rates and rules change: check each source’s date before acting on it.

  1. Unchained collaborative custody · unchained.com. ↩
  2. IRS. Frequently Asked Questions on Virtual Currency Transactions · irs.gov. ↩
  3. Internal Revenue Service, IRS: What's new, estate and gift tax ↩
  4. IRS RMDRequired Minimum Distribution (RMD)The minimum the IRS requires you to withdraw each year from traditional IRAs, 401(k)s, and similar accounts, generally starting at 73, or 75 if born in 1960 or later. It equals the prior December 31 balance divided by an IRS life expectancy factor. Roth IRAs and Roth 401(k)s have no RMDs during the owner's lifetime. FAQ (post-SECURE Act inherited-account rules) · irs.gov. ↩
  5. Casa pricing and plans - keys.casa/pricing ↩
  6. Unchained Capital vault pricing - unchained.com/pricing ↩
  7. Glacier Protocol - glacierprotocol.org ↩
  8. Glacier Protocol releases (v0.94-beta, April 22, 2023) - github.com/GlacierProtocol
  9. SLIP-39: Shamir's Secret-Sharing for Mnemonic Codes - SLIP-39 spec
  10. Chainalysis and Glassnode estimates of permanently lost Bitcoin; Chainalysis, "Bitcoin Investor Study" - chainalysis.com
  11. IRS Publication 559: Survivors, Executors, and Administrators · irs.gov/publications/p559.
  12. IRC Section 1014 (basis of property acquired from a decedent).
  13. SECURE Act of 2019 (Public Law 116-94) and SECURE 2.0 (Public Law 117-328) · statutory authority for the 10-year rule.
  14. Casa concierge multisig · keys.casa.
  15. Sparrow Wallet (open-source DIY multisig) · sparrowwallet.com.
  16. Jameson Lopp, "Bitcoin Inheritance Planning" - blog.lopp.net
  17. Pamela Morgan, "Cryptoasset Inheritance Planning" (book, 2018)

Last updated . Not financial advice. Do your own research. Disclosures · How pages are reviewed

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