If you plan to leave cryptocurrency to your heirs, there are really two questions to answer.
First: Who is legally entitled to the assets?
Second: Will that person actually be able to access them?
With many traditional financial accounts, institutions have established procedures for identifying beneficiaries or working with authorized representatives after an account owner dies.
Crypto can add another layer – especially when the assets are held in self-custody.
An heir may have the legal right to inherit cryptocurrency without the private key, recovery phrase or other credentials necessary to access it. With a self-custodied wallet, there may be no bank, brokerage or customer-service department who can help you reset those credentials.
That distinction between ownership and access is becoming important enough that crypto companies are starting to build inheritance tools specifically around it.
A new attempt to solve the crypto inheritance problem
On September 29, Uphold announced Vault Inheritance, a new beneficiary feature for bitcoin, XRP and Hedera (HBAR) held in Uphold Vault. The company describes this as an “assisted self-custody service.”
According to Uphold, customers can designate a beneficiary from their Vault account. The beneficiary is notified and asked to establish an Uphold account, but for obvious reasons receives no access to the owner’s assets while the owner is alive.
After the owner’s death, the beneficiary can submit a claim. Uphold says its compliance team then verifies the relevant legal documentation before transferring control of the assets to the beneficiary’s wallet.
Now, that may take some of the drama out of the traditional surprise reading of the will. But Uphold is addressing a very real problem.
Although Uphold calls this an “industry first,” crypto-inheritance procedures already exist. (Read on to learn how BitIRA handles inheritance.)
But more important than who got there first is what products like this tell us: Long-term crypto ownership increasingly requires thinking about succession, not just security.
Legal ownership isn’t a private key
A noncustodial crypto wallet is controlled through credentials. If the only person who knows how to access those credentials dies without leaving a workable plan, a last will and testament alone isn’t enough.
Fidelity makes this distinction in its guide to cryptocurrency and estate planning. Even a fiduciary with legal authority over an estate doesn’t have access to a self-custodied wallet without the private key or other credentials.
That’s why an estate plan involving crypto may need to address both sides of the equation: The legal instructions and the credentials.
That doesn’t mean writing a seed phrase into a will. (Fidelity cautions against putting sensitive private-key information directly into estate-planning documents – for good reason!) Instead, they suggest creating an inventory and instructions explaining what exists, where it is held and how to securely gain the access information.
Fidelity offers broader guidance on incorporating digital property into an estate plan, too.
The specifics depend how the crypto is stored, as well as the individual’s legal and financial circumstances. At this point, I advise consulting a qualified estate planner and tax professionals. This is not a situation where you want to rely on a homemade checklist.
But there’s a better way…
Third-party custody changes the inheritance equation
Self-custody gives an owner direct control of cryptocurrency, but that control comes with responsibility for protecting – and eventually transferring – the means of access.
Third-party custody changes that arrangement.
When a qualified custodian holds assets, there is an organization responsible for administering the account and maintaining records. That doesn’t eliminate the need for estate planning, nor does it guarantee that every transfer will be simple. Beneficiaries or estate representatives may still need to provide documentation and follow applicable legal and account procedures.
But it can remove one very specific point of failure: The entire inheritance does not depend on someone finding a seed phrase that only the account owner knew.
For cryptocurrency owned in an IRA, though, things are even simpler…
An IRA account already has inheritance procedures
An individual retirement account (IRA) is more than a portfolio of investments. It’s a legally defined account structure established for the benefit of its owner or beneficiaries and maintained by an eligible trustee or custodian.
The IRS explains those requirements in Publication 590-A.
Here’s the point: According to IRS rules, IRA owners can designate beneficiaries and inherited-IRA rules determine how the account is handled after the owner passes away.
Those rules can differ significantly depending on the situation. A surviving spouse, for example, has options that aren’t available to non-spouse beneficiaries. Heirs may be subject to required distributions or rules requiring the account to be emptied within a particular timeframe.
Here’s the IRS overview. (Note that Traditional and Roth IRAs don’t work identically. Traditional IRA distributions are generally taxable to the recipient, while qualified Roth distributions receive different tax treatment. Inherited IRAs also have their own, different distribution requirements.)
In other words, an IRA provides a formal beneficiary structure. The reason you aren’t reading a BitIRA press release about our version of Uphold’s Vault Inheritance program is because it already exists for our customers.
That’s important to BitIRA customers. And to the 71% of Americans who plan to leave a legacy for their children…
How BitIRA’s Digital IRA handles inheritance
Uphold’s new service is designed to solve a problem that comes with self-custody: What happens when the person controlling the crypto’s access credentials is no longer there to use them?
A Digital IRA approaches that problem differently.
With BitIRA, customers don’t personally maintain the private keys to cryptocurrency held in their accounts. Equity Trust Company serves as the IRA custodian, while BitIRA uses Ledger Enterprise technology for digital-asset storage, with multi-signature authorization designed to avoid dependence on a single key or device.
At the same time, the Digital IRA itself has an established beneficiary structure. Equity Trust allows account holders to designate and update beneficiaries, who can then work through the custodian’s standard procedures to claim ownership of their inheritance.
That doesn’t make estate planning unnecessary – nor does it mean that every inheritance will be simple. (The beneficiary’s information must be kept current, and inherited-IRA distribution and tax rules still apply.)
But this structure addresses one problem that can be especially important with crypto: Passing on the asset does not depend on an heir finding the owner’s private key or seed phrase.
For people who have decided that cryptocurrency fits within their retirement plans, that’s reassuring. Long-term crypto ownership with a Digital IRA from BitIRA already has a formal beneficiary framework – and institutional procedures for securing those digital assets, and for transferring them necessary.
And that’s worth thinking about! Because, after all, “long term” could mean longer than your lifetime.
If you’d like to learn more about how a Digital IRA works – including its account, custody and security structure – you can start with this free Crypto IRA Guide. And if you’ve already completed your due diligence and are ready to get started, you can open a Digital IRA with BitIRA online (anytime, day or night) in less than 10 minutes. And don’t forget to fill out your beneficiary forms!
