Estate Tax
A tax levied on the total value of a deceased person's assets, including crypto, before those assets are distributed to heirs.
An estate tax is a tax levied on the total value of a deceased person's assets — their "estate" — before those assets are distributed to heirs or beneficiaries, as distinct from an inheritance tax, which is instead levied on what each individual beneficiary receives. Crypto holdings are typically included in a deceased person's taxable estate at their fair market value as of the date of death, alongside other assets like real estate, securities, and cash.
Crypto introduces a distinctive estate-planning complication beyond ordinary assets: unlike a bank account or brokerage holding, crypto held in a self-custodied wallet has no institution that can simply be notified of the owner's death and asked to transfer the assets — heirs need the actual private keys or seed phrase to access the funds at all, making documented, secure succession planning (such as through a dead man's switch, see Kaavon's "Dead Man's Switch" glossary definition, or clearly recorded instructions held by a trusted party or attorney) especially critical for self-custodied crypto specifically.
Examples
- A deceased person's crypto holdings are typically valued at their fair market value as of the date of death when calculating the overall estate tax owed.
- Without documented access to private keys or a seed phrase, a deceased person's self-custodied crypto can become permanently inaccessible to heirs, regardless of what the estate tax calculation says it's worth.