A brokerage account has a beneficiary designation. A house has a deed. Crypto held on an exchange like Coinbase can transfer through estate procedures — a death certificate and paperwork. But crypto you hold yourself doesn't work that way. If the private keys, passwords, or recovery phrases aren't documented and accessible to the right people, those assets are permanently gone.
A will that says "I leave my Bitcoin to my daughter" doesn't help if she can't get into the wallet. Courts can grant legal ownership, but they can't recover a private key. And wills filed in probate typically become public record — so sensitive access information shouldn't go in one.
What works is pairing legal structure with practical access. A revocable trust gives a successor trustee the authority to manage digital assets, but that authority is useless if they can't actually get in. Recovery phrases, device locations, software, PIN codes — all of it should live in a secure vault or encrypted password manager, never in the estate documents themselves.
There's also a knowledge gap. Most heirs wouldn't know what to do with a recovery phrase even if they had one. The documentation needs plain instructions — what to open, how to restore access, how to move funds to a safe place.
Inherited crypto gets a stepped-up tax basis the same way stocks or real estate do — but proving that basis is a newer challenge. Exchanges now report cost basis to the IRS on Form 1099-DA. If an heir moves self-custodied crypto to an exchange and sells, the exchange may report the cost basis as zero since it has no record of when the crypto was acquired or at what price. Without documentation, the heir could face a tax bill on the full sale amount. Cost basis records should be part of the estate documentation, right alongside access instructions.
For positions with large unrealized gains, getting this right means heirs actually receive both the assets and the tax benefit.
For educational purposes only. Not tax, legal, or investment advice.