Estate Planning & Digital Assets

Because possession is the key, literally. A brokerage account passes when the custodian sees letters of office; a self-custody wallet passes only to someone holding the seed phrase, and no court order can recover a phrase nobody wrote down. The plan therefore has a legal layer, which is the express digital-asset authority in the will and trust, and a technical layer, which is where the keys are and who can assemble them. Ordinary estate documents do the first and are silent on the second.

Self-custodied coin without a recoverable key is lost permanently, and it is still included in the taxable estate at its date-of-death value, so the family can owe estate tax on an asset nobody can reach. Exchange balances are usually recoverable through the platform's deceased-user process once an executor is appointed, but that depends on the heirs knowing the account exists. The inventory, kept current and stored where the executor will look, is the single cheapest piece of the plan.

They are never written into the will or the trust, both of which can become public records. The usual designs are a threshold scheme that splits the recovery phrase into shares held by different people, or a multi-signature wallet that needs two of three keys, with the fiduciary holding one. A sealed access memorandum tells the executor where each piece is and how to combine them, and it is updated whenever a device, a passphrase or a holder changes.

At death the coin takes a basis equal to its fair market value on the date of death under Section 1014, so built-in gain is never taxed as income, and the full value is included in the gross estate for the federal estate tax, with the return due nine months later. A lifetime gift uses the annual exclusion and then the lifetime exemption, but the donee takes the donor's basis under Section 1015 and pays the capital-gains tax on sale. Illinois adds its own estate tax above a $4 million exemption that is not indexed.

Yes, if the instrument says so. The Illinois Trust Code applies the prudent investor rule, which favors diversification, so the trust should expressly authorize holding digital assets and relieve the trustee of liability for keeping a concentrated position. Illinois also recognizes directed trusts, which let a named investment adviser or custody adviser control the keys and the trading while a corporate trustee handles accounting and distributions. Funding the trust during life means the coin never passes through probate at all.

Three things, in order: where the inventory and access memorandum are, how to assemble the keys without exposing them, and how to move the coin to a wallet they control before anyone else learns of the death. We run a rehearsal with the named fiduciary during the owner's life, restoring a wallet from the shares and sending a nominal amount. The beneficiary also learns the tax position, because the stepped-up basis on inherited coin is only useful if the date-of-death value was documented.