Cryptocurrency owners must face death—be it their own, or that of anyone else with custody of the owner’s cryptocurrency or other digital assets. We received a stark reminder of this when the Canadian exchange QuadrigaCX recently filed court papers[1] indicating it may have lost access to nearly $200 million USD of its customers’ Bitcoin, Ether and other cryptocurrencies. The exchange claimed to have used cold wallets to store its portion of customers’ vital cryptocurrency offline. After the owner of the exchange died, however, the exchange has apparently struggled to access this cryptocurrency and related fiat deposits, and customers may forever lose their assets housed on the exchange.[2]

This case, while somewhat extreme, is a good reminder that cryptocurrency owners must understand who is critical to accessing their assets, and how those assets are handled upon the death or incapacity of anyone involved. The QuadrigaCX story showcases another variation of this concern—specifically, the pitfalls and potential benefits of involving a third party in storing cryptocurrency who does not employ basic business succession planning.

Protection of Private Keys Generally

In the case of an individual cryptocurrency owner who has sole control of his or her private key, he or she must plan around the potential for theft, loss, or his or her own death or incapacity. As tax practitioners have reminded the IRS, “[i]f the taxpayer loses the private key [for particular cryptocurrency], they lose all of their funds.”[3] Furthermore, the asset may have no protection as “unclaimed property” as a state may not have the ability to control the asset absent a trusted intermediary who can be compelled to turn it over. As a result, owners may be forced to store their private keys on paper or on USBs to obtain the desired level of security and access by their fiduciaries during incapacity or at death.

State Law Impact on Third-Party Access

That owners need to take relatively rudimentary steps to effectuate estate planning goals highlights the shortcomings of many states’ recently enacted legislation. State legislatures implemented steps intended to provide fiduciaries with access to a deceased or incapacitated owner’s digital assets (including websites, digital photo albums, and bank account logins) so that attempts to access these assets do not trigger criminal and civil liability under the Computer Fraud and Abuse Act (“CFAA”). Most of these states have adopted some version of the Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”).[4] RUFADAA allows fiduciaries to lawfully access digital assets on behalf of a user/owner. However, in many cases, the custodian can restrict the scope of, and the process for obtaining, that access. Owners and their estate planning professionals should consider including language in estate planning documents that expressly provide for such authority.

However, in many instances, owners and their agents may find that including fiduciary access language alone is insufficient protection for cryptocurrencies, which were not necessarily considered or sufficiently understood by drafters when RUFADAA and similar statutes were adopted. For example, the owner may move to a jurisdiction with limited or no statutory protections like RUFADAA. Or the owner may have used a decentralized exchange with no third-party agent (as is the intention of a truly decentralized exchange). Or the cryptocurrency owner (or third-party agent) may have eschewed exchanges entirely and utilized a cold storage option (paper or hardware wallet). In these and other situations, owners must employ more practical ways of providing their fiduciaries with access to digital assets at death or incapacity. However, for many investors who are attracted to cryptocurrencies for their perceived anonymity and privacy, using multi-signature wallets[5] or allowing fiduciaries to access keys, passwords, IDs, PINs, key phrases, mnemonics, etc., may seem antithetical to holding cryptocurrency in the first place.

Key Considerations and Challenges

Balancing an owner’s desire for anonymity, privacy and control with the need for fiduciary/agent access is just one of many that estate planning and tax professionals have begun to discuss in earnest. Other challenges include:

  • Knowledge Gap. How can an owner educate his or her trusted advisors or family members about how to sell, or even access, cryptocurrency? Do the owner’s trusted advisors and family members know the difference between digital securities, cryptocurrencies and utility tokens and whether these assets should be considered tangible personal property? Ensuring recipients or advisors have a working knowledge of cryptocurrency fundamentals (including the classification of the types of assets actually held), as well as the tax treatment of these assets following death,[6] is a prudent step to ensure smooth estate planning.[7]
  • Hesitancy of Fiduciaries. Fiduciaries and trustees, who are bound to standards of care such as the prudent investor rules,[8] remain hesitant to hold cryptocurrency or token-based assets on behalf of clients given the regulatory uncertainty surrounding these assets, the volatility of cryptocurrency exchange rates, and the dearth of licensed custodians and traditional banks willing to hold these assets.[9]
  • Titling of Accounts. If a custodian and governing statute permit, an owner may choose to title a digital asset account or wallet as custodial, transfer on death (“TOD”), payable on death (“POD”) or other joint account. The Uniform Transfer on Death Security Registration Act (“UTODSRA”) permits beneficiary registration of securities. Given the uncertain status of digital assets in the eyes of state, federal and foreign securities regulators, it is unclear whether UTODSRA applies to many types of digital assets. An owner must also consider whether such a designation harmonizes with the rest of his or her estate plan.
  • Changing Laws. The state, federal and foreign laws that govern the legality of, and third-party access to, digital assets are constantly changing.[10] Owners and their advisors should not forget to consider foreign reporting obligations that carry significant potential penalties, especially given that many of the custodians and exchanges for cryptocurrencies are located or operated outside of the United States for tax and liability reasons.
  • Violation of Terms of Service/CFAA. The terms of service for some exchanges or investment contracts governing the acquisition of cryptocurrency prohibit the sharing of passwords, even with a trusted friend or family member. Even if a trusted advisor has the owner’s password and permission, the advisor may not have the service provider’s permission, creating a technical violation of the CFAA.
  • Security. Owners may prefer to use exchanges, rather than personal wallets, if these exchanges employ tracking technology or redundancy features to prevent lost access to cryptocurrency. In addition, some exchanges may employ a classic login/password (as opposed to long and hard-to-memorize private keys), making fiduciaries more comfortable managing digital assets on exchanges as opposed to in cold storage wallets. However, in light of the events at QuadrigaCX and Mt. Gox, owners and their trusted advisors are cautioned to diligence an exchange’s policies regarding third-party fiduciary access, transfers on customer death, and the exchange’s own redundancy and succession planning policy before depositing assets with them.
  • Maintaining Up-to-Date Inventory. Owners themselves—let alone fiduciaries—face the challenge of maintaining a secure and up-to-date inventory of digital assets (especially for active investors, issuers and exchanges). This reflects, among other things, (i) the potential anonymity afforded to holders of digital assets, (ii) the speed at which assets can be transferred without third-party intermediaries like brokers, and (iii) the likely dispersion of an owner’s assets across multiple exchanges and wallets (as opposed to using just one brokerage firm, as is often the case with traditional equity securities).

Yet in addressing the above issues, owners and their trusted advisors must not lose sight of the following:

  • The digital asset owner’s risk tolerance, particularly regarding security, privacy and control;
  • The digital asset owner’s current cryptocurrency practices (e.g., storage method, frequency of activity, dispersion of assets, etc.); and
  • The digital asset owner’s other estate planning goals (e.g., beneficiaries, preservation of wealth, agents, tax, etc.).

In a rapidly changing technological environment, the law as it governs digital assets is a turtle. Cryptocurrency owners should think immediately about how to address these challenges in light of their personal planning goals. Utilizing a legal team of tax, estate planning, and blockchain/digital asset specialists to guide a digital asset owner through the planning process can significantly enhance an owner’s success at protecting digital assets during incapacity, as well as transferring them safely and efficiently at death.

[1] Nikhilesh De, QuadrigaCX Owes Customers $190 Million, Court Filing Shows, Coindesk (Feb. 1, 2019),

[2] A cryptocurrency blog editor has reportedly found trails of a portion of the missing digital assets on three exchanges, which may facilitate recovery of some of these funds. Joseph Young, Newsflash: $90 Million of QuadrigaCX’s Missing Crypto Found, Claims Researcher: Is it Recoverable?, CCN, (last updated Mar. 1, 2019).

[3] Updated Comments on Notice 2014-21: Virtual Currency Guidance, Am. Inst. of CPAs 15 (May 30, 2018),

[4] Currently, 42 states have passed some version of RUFADAA, and five others, plus Washington D.C., have introduced pending legislation. Only three states have no version of RUFADAA enacted or proposed—Delaware, Kentucky and Louisiana. See Fiduciary Access to Digital Assets Act (Revised), Uniform Law Comm’n (2015),; see also I. Richard Ploss, Estate Planning for Digital Assets: Understanding the Revised Uniform Fiduciary Access to Digital Assets Act and Its Implications for Planners and Clients, J. of Fin. Planning (Apr. 2018),

[5] Situations like QuadrigaCX can still arise in so-called multi-signature arrangements using multiple private keys or scenarios when a private key is manually split into two or more parts that must be combined to authorize transfer or conversion to U.S. dollars or Euros. These arrangements provide clear benefits—in a “2-of-3” arrangement, for example, you can gain additional security while only two of the three designated persons must authorize a transfer (e.g., allowing one of the three holders to pass away or lose his or her key without destroying access to the associated cryptocurrency). This is similar to traditional multi-signature requirements employed by businesses for large payments. But, there are pitfalls in “2-of-2” arrangements or other scenarios in which the death of one or more participants can ultimately prevent access to the cryptocurrency forever.

[6] Because the IRS currently views cryptocurrency as personal property and not fiat currency,[6] certain planning techniques can maximize the “step-up” in tax basis that occurs at death for certain assets. This planning may later reduce the inheriting owner’s tax burden significantly if, for example, the inheriting owner were to sell assets after the death of the original owner.

[7] Geoffrey S. Kunkler, Preparing for the New Frontier in Trusts & Estates: Blockchain and Cryptocurrency, Incorporating Cryptocurrencies Into Estate Planning, 29 Ohio Prob. L.J. NL 5 (Sept./Oct. 2018).

[8] See, e.g., Section 2(a) of the Uniform Prudent Investor Act, which has been enacted in 45 states (not Florida, Georgia, Louisiana, New York or Pennsylvania), and which notes that trustees owe a duty to monitor trust investments. See also Section 3 of the Uniform Prudent Management of Institutional Funds Act (2006), enacted in all states except Pennsylvania.

[9] Jonathan Curry, Estate and Gift Tax Planning for Bitcoin Still in Its Infancy, Tax Notes (May 28, 2018) [unable to access – subscription only].

[10] Id.; see also Josias Dewey, Abigail E. O’Connor et. al., Decentralized Assets: Real World Estate Planning for Virtual Currencies and Digital Tokens, in Edward F. Koren, Estate, Tax & Personal Financial Planning (Sept. 2018).