Inherited Bitcoin is property. Under IRC § 1014, it generally receives a new cost basis equal to its fair market value at death. That is the tax rule.
Access is a different problem. Keys that nobody can use are not an estate asset in practice. They are gone.
This guide covers U.S. federal tax and the usual state probate pattern as of September 2026.
This article is general legal information. It is not a will, a trust, or legal advice.
Key takeaways
Bitcoin is property. It is part of your taxable estate like any other asset.
Heirs usually take a date-of-death basis under § 1014. The gain built up during your life is not taxed as income to the heir.
The 2026 federal estate and gift tax basic exclusion is $15 million per person, set by the One Big Beautiful Bill Act (P.L. 119-21) and confirmed in Rev. Proc. 2025-32. Smaller estates can still face state tax, access problems, and basis disputes.
RUFADAA helps an executor reach a custodial exchange account. It cannot reconstruct a seed phrase you never shared.
Putting a seed phrase in a will that goes through probate turns the secret into a public record.
The legal object is property, not a login
IRS Notice 2014-21 treats virtual currency as property. At death, that classification has three consequences:
The coins are part of the gross estate if the decedent owned them. See the IRS estate tax overview and Publication 559.
The heir's income-tax basis is generally the fair market value on the date of death. The executor can instead elect the alternate valuation date (six months after death) on Form 706, but only if that election lowers both the gross estate and the estate tax due.
The heir's holding period is automatically long-term when the heir later sells, even if the sale happens soon after death. See IRC § 1223(9).
In the nine community property states, a surviving spouse's half of community property can also receive a new basis at the first spouse's death under § 1014(b)(6). Check how your coins are titled.
Gifting during life works differently. A lifetime gift usually carries the donor's original basis. The 2026 annual gift exclusion is $19,000 per recipient under Rev. Proc. 2025-32. Larger gifts may require a Form 709 gift tax return.
Tax at death versus tax when the heir sells
You die holding Bitcoin. Income tax: none on the unrealized gain. Estate tax: only if your gross estate exceeds the federal exclusion, or if your state has its own estate tax.
Your heir receives the coins. Income tax: none on receipt. Estate tax: already settled at the estate level.
Your heir sells later. Income tax: capital gain or loss measured from the date-of-death value, always long-term. Estate tax: none on that sale.
Federal estate tax is paid by the estate, not by the heir. A separate state "inheritance tax" on heirs still exists in five states in 2026: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. About a dozen states and the District of Columbia also levy their own estate tax, often with thresholds far below $15 million. Confirm the rules in the state where you are domiciled.
Form 706 is still worth filing for a married decedent even when no federal tax is due, because it is how the surviving spouse keeps the unused exclusion (the "portability" election).
Document the dollar value at death. Bitcoin has a price every second. Executors should keep a record of the price from a major exchange at the date and time of death.
The consistent-basis rules of § 1014(f) can cap an heir's basis at the value reported on the estate tax return, when including that property increased the estate tax. In that case, the executor also reports the values to heirs on Form 8971.
Why probate is a bad place for keys
Probate is a public court process. A will that says "my Bitcoin is at this address, and the seed phrase is…" becomes a document anyone can read and copy.
From there, two legal paths separate.
Custodial coins (exchange or hosted wallet). Most states have enacted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). An executor can request access from the custodian with a death certificate and letters of appointment from the court.
The statute sets a three-tier priority: first the platform's own online tool (such as a named contact), then the will or trust, then the platform's terms of service. RUFADAA is an account-access law. It is not a key-recovery law.
Self-custodied coins. There is no company to contact. The Bitcoin network moves coins for whoever can produce a valid signature.
If the heir has no key, no backup, and no pre-arranged multisig path, RUFADAA does not help. A court order cannot make the network rewrite its history.
That is the succession gap unique to Bitcoin. The tax code can value an asset that the family cannot spend.
What actually works in practice
Speak to counsel in your state. The legal tools are ordinary. The operational design is not.
A will can name who receives the coins. It should never reveal the secret that controls them.
A revocable living trust can keep administration out of the public court record in many states and give a successor trustee authority without a full probate.
A letter of instruction, stored separately from the keys, can tell a named person where the hardware, the attorney's file, or the multisig procedure is kept.
Multisig (for example, 2-of-3) splits signing authority, so no single death or single burglary ends access. You set this up while you are alive. An executor cannot create it afterward.
Exchange beneficiary or "inheritor contact" features, where a platform offers them, only cover coins still held on that platform.
Do not email the seed phrase to yourself. Do not engrave it on a plate stored next to the hardware wallet with your full legal name on it. Both feel like planning, but both create the exact risk good planning is meant to remove.
A short example
You bought Bitcoin years ago for $40,000. At your death, it is worth $400,000. Your child inherits it.
Estate inclusion: $400,000, added to everything else you own.
Transfer tax: if your total estate is under the $15 million federal exclusion and your state has no estate or inheritance tax, none is due.
Child's basis: $400,000.
Sale: your child sells six months later for $420,000. Federal income tax applies only to the $20,000 gain, taxed as long-term.
If you had instead given the same coins the year before your death, your child would generally take your $40,000 basis, with a $360,000 built-in gain.
Lifetime gifts and transfers at death are not interchangeable.
Checklist before you need it
List every exchange account and every self-custody setup. Do not store that list in the same place as the keys.
Decide who should receive the economic value. Put that in a will or trust.
Decide who should be able to move the coins. That is a separate design question.
Tell one trusted, competent person that instructions exist and where your attorney keeps them.
Test a recovery once. A plan that has never been tested is only a theory.
Review everything after a move, a marriage, a birth, or a large purchase.
Conclusion
Bitcoin inheritance fails in two opposite ways: the family never finds the keys, or the keys appear in a courtroom.
Federal tax law is clearer than the access problem. Section 1014 resets the basis. Form 706 and Publication 559 govern the estate side. Neither will sign a transaction for your heirs.
If you hold coins outside an exchange, treat succession as part of self-custody, not as something to add later.
Next step: read the IRS pages mentioned above, then have an estate planning attorney in your state draft documents that never reveal the secret.
FAQ
What happens to Bitcoin when you die?
It becomes part of your estate if you owned it. Your heirs receive it only if they can access it and you left a valid transfer under state law. Unrecoverable keys mean the coins are lost for good.
Do heirs pay capital gains tax on inherited Bitcoin?
Not on the gain that built up during your life. Their basis is generally the value on the date of death. Any increase after that is theirs to report, and it is treated as long-term.
Is there a Bitcoin inheritance tax?
There is no federal tax with that name. Federal estate tax applies only to large estates. Five states (Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) tax heirs directly, and about a dozen more have their own estate tax. Check your state of domicile.
Does a will transfer Bitcoin?
A will can transfer the legal right to the coins. It cannot create a signature. Never put a seed phrase in a will that will be filed in court.
Can an executor get coins from Coinbase or another exchange?
Often yes, under the state's version of RUFADAA and the platform's own procedure, with the right documents. Self-custodied coins are outside that process.
Does the $15 million exclusion mean I can skip planning?
No. State estate and inheritance taxes, basis documentation, portability, blended families, and key access all matter well below $15 million.
Disclaimer: This article is provided for general information and educational purposes only. It does not constitute legal, tax, or financial advice, and nothing here is written in a professional capacity. Laws and regulations change frequently and differ by jurisdiction, and some of the rules described above may have changed since publication. Always check the primary sources and consult a qualified professional in your jurisdiction before making any decision. The Bitcoin Act accepts no liability for any action taken on the basis of this content.
