Inheriting cryptocurrency: the digital asset estate planning gap

For most of an Australian retiree's financial life, the death-of-the-account-holder problem is solved by institutions. Banks have deceased estate teams. Brokerage platforms have transfer-on-death procedures. Super funds have death benefit nomination frameworks. A determined executor with a death certificate, grant of probate, and standard documentation can identify, access, and distribute the deceased's financial assets through institutional channels.

Cryptocurrency does not work that way.

The blockchain is indifferent to legal ownership. It does not care who is the executor, who is the beneficiary, who is the surviving spouse. It executes transactions for whoever signs them with the correct private key. If the deceased's family cannot recover the private key — or the seed phrase that regenerates it — the assets remain locked on-chain forever. The inheritance is, in practice, a loss.

This is not a hypothetical. Industry estimates suggest 20% or more of Bitcoin's total supply is permanently lost — keys forgotten, devices destroyed, holders deceased without leaving access. Among older holders specifically, the rate of loss on death is meaningful. For Australian retirees with material crypto holdings, the question is not whether the access problem matters but how to solve it.

What are the custody types and what does each imply?

Custody types and what each implies. Crypto can be held in several ways, with very different estate planning implications.

Self-custody hot wallet (mobile or desktop app, e.g., MetaMask, Trust Wallet). The private key is on the device, secured by a password. The seed phrase is the recovery mechanism if the device is lost. Estate planning implication: if the family cannot find the device, password, and seed phrase, the assets are inaccessible.

Self-custody cold wallet (hardware device like Ledger or Trezor). Same principle — the seed phrase is the single point of access. The hardware device is often lost or unrecognised by family members during home cleanup; the seed phrase, if not documented, is irrecoverable.

Centralised exchange (Binance, Coinbase, BTC Markets, Independent Reserve). The exchange holds the crypto on the user's behalf, with KYC records linking the account to the user's identity. On the user's death, the executor can engage the exchange directly, present the death certificate and probate, and have the holdings released to the estate or transferred to a beneficiary's account. The process is more complex than traditional bank account access — there are fewer institutional precedents, and exchange procedures vary — but it is workable. Crypto on a centralised exchange is recoverable.

Decentralised finance positions (Uniswap liquidity pools, Aave loans, staked Ethereum, NFT holdings). Each position is typically accessed through a wallet, with the same private-key-controls-everything problem. Some positions require specific transactions to unwind, which can be technical for a non-crypto-native executor.

Crypto in self-managed super funds. SMSFs holding crypto typically use exchange accounts or wallets controlled by the trustees. Access on the death of one trustee depends on the fund's signing arrangements and the surviving trustees.

What is the exchange holding paradox?

The exchange holding paradox. A common critique of centralised exchanges in the crypto community is "not your keys, not your coins" — emphasising the counterparty risk of holding through a regulated intermediary. From an estate planning perspective, the calculation often runs the other way. A retiree with substantial crypto holdings who wants their family to have realistic access on death may be better served by exchange-based holding. The trade-off is exchange counterparty risk (the exchange could fail, as with FTX) versus access risk (the seed phrase could be lost).

For most retirees, especially those without a crypto-savvy family member to handle technical recovery, exchange-based holding for the bulk of holdings is a reasonable choice. The peace of mind that the family can access the assets through institutional channels is meaningful. For sophisticated holders comfortable with self-custody, the seed phrase documentation problem must be solved by other means.

How is CGT treated on inheritance?

The CGT treatment on inheritance. When an Australian holder of cryptocurrency dies, the CGT treatment of the asset transfer to a beneficiary follows general rules. The death itself is not generally a CGT event for assets passing to the beneficiary. The beneficiary inherits the asset with the deceased's original cost base.

A practical example: deceased bought 1 BTC for $5,000 in 2017. At death (with BTC at $80,000), the asset passes to the beneficiary with a cost base of $5,000. If the beneficiary later sells at $80,000, capital gain is $75,000. The 50% CGT discount may apply if the deceased held for 12+ months and the beneficiary holds at least briefly.

Pre-1985 cost base treatment, which gives a market-value cost base on death for assets acquired before 20 September 1985, never applies to cryptocurrency — which by definition did not exist before 1985. All inherited crypto has a cost base equal to the deceased's original acquisition cost.

For inheriting beneficiaries, the cost base inheritance has planning implications. Selling immediately at the inheritance moment realises the full unrealised gain at marginal rates (with the 50% CGT discount potentially applying). Holding and selling later has the same cost base but exposes the beneficiary to further price movement. Both are personal-circumstances-specific decisions.

How is crypto valued at date of death?

Valuation at date of death. For Centrelink reporting, tax records, and estate administration, the value of crypto at the date of death is required. The value is the AUD-equivalent at the close of the day of death from a recognised exchange or aggregator service. For volatile crypto, the figure can move materially within hours; the executor should capture the value with documentation of source and timestamp.

What are the estate planning steps?

The estate planning steps. For Australian retirees with crypto holdings, the practical estate planning approach:

1. Inventory the holdings. Document each holding — exchange, wallet type, approximate value. The inventory should be reviewed annually as holdings and values change.
2. Choose the access mechanism. For substantial self-custody holdings, options include: a trusted contact arrangement (family member or executor knows the location of the seed phrase or sealed instructions); a multi-signature wallet requiring 2-of-3 keys held by different parties (self, spouse, lawyer); or a specialist crypto custody service with estate-planning workflows. For exchange-based holdings, simpler — document the exchange and account details for the executor.
3. Document the access details in a sealed instruction or secure storage cross-referenced in the will. The will itself need not specify private keys (which would be inappropriate to include in a public document on probate); a separate access document referenced by the will is the typical mechanism.
4. Update the will. The will should explicitly identify that crypto holdings exist, name the beneficiary or beneficiaries, and reference the access mechanism document.
5. Brief the executor. The executor needs to know that crypto exists and how to access it. Without this, even substantial holdings can go undiscovered.
6. Test the recovery process. Periodic testing — restoring the seed phrase to a test wallet, confirming exchange account access — confirms the mechanism works. Many crypto losses occur because the seed phrase was written down incorrectly and never tested.
7. Coordinate with adviser, accountant, and estate planning lawyer. All three professionals should know of the holdings — the adviser for ongoing financial advice, the accountant for tax records, the lawyer for the estate planning documents.

Cryptocurrency is now a genuine asset class held by a meaningful share of Australian retirees and pre-retirees. The estate planning question is not whether to plan for it but how. Inadequate planning produces a specific and concrete loss — the family receives nothing, the assets remain locked on-chain, and the holdings are effectively gone. Adequate planning is not technically complex, but it requires deliberate action, documentation, and periodic review. For holders, the planning conversation belongs in the same category as wills and binding death benefit nominations — necessary, not optional, and best done while the holder is still able to do it.

Sources

• ATO — How CGT applies to inherited assets
• ATO — Cost base of inherited assets
• ATO — CGT discount
• ATO — How to work out and report CGT on crypto
• ATO — Keeping crypto records
• Moneysmart — Crypto assets