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Crypto Law/Level IX · Death, divorce and disputes/9.1 Inheritance/Lesson 5

Valuing crypto in an estate

How US estate tax law values coins and tokens at death, where crypto strains rules written for stocks, and what over- or under-valuing costs the estate and the heirs.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Most estates owe no federal estate tax: Form 706 is required only above $15,000,000 for 2026 deaths, yet a documented date-of-death value still fixes heirs’ basis under §1014, so save the price source and timestamp anyway.
  2. A surviving spouse can preserve the unused exclusion cheaply: Rev. Proc. 2022-32 allows a late portability election up to the fifth anniversary of death for estates not otherwise required to file Form 706.
  3. Returns filed solely to elect portability need no Form 8971 basis statement under its instructions, which keeps reporting light; estates required to file must send Form 8971 within 30 days of the return’s due or filing date.
  4. Alternate valuation under 26 U.S.C. §2032 can cut tax after a crash, but only if it lowers both the gross estate and the tax, applies to all property, and is elected within one year of the return’s due date.
  5. Pay for a qualified appraisal only for thinly traded tokens or large holdings; undervaluing invites the §6662 penalty of 20% (40% at 40% or less of correct value) and lowers heirs’ basis.

MaterialsTreas. Reg. §20.2031-1(b) and §20.2031-2, the estate tax valuation rulesThe Instructions for Form 706 (July 2026 revision), Schedule F26 U.S.C. §§2032, 1014(f), 6035 and 6662(g)-(h)HMRC Cryptoassets Manual, page CRYPTO25000, for the UK comparison

Wonder

  1. Which price counts when a coin trades at different prices on different exchanges on the day of death?
  2. What is a token worth if almost nobody trades it?
  3. Does it matter to the heirs if the estate reports a low value?

Explore

  1. For US federal estate tax, Treas. Reg. §20.2031-1(b) values every item in the gross estate at fair market value at the date of death: the price at which it would change hands between a willing buyer and a willing seller, neither under any compulsion and both with reasonable knowledge of the relevant facts. The Instructions for Form 706 (July 2026 revision) tell executors to report digital assets, defined to include cryptocurrencies, stablecoins and NFTs, on Schedule F, ‘Other Miscellaneous Property’. For deaths in 2026 a return is required when the gross estate plus adjusted taxable gifts exceeds $15,000,000, or when the executor elects portability.
  2. For listed stocks and bonds, §20.2031-2(b) gives a mechanical answer: the mean between the highest and lowest quoted selling prices on the valuation date. That rule is written for stocks and bonds, and the estate tax regulations set no comparable formula for crypto, which trades around the clock on many venues at slightly different prices. In its income tax FAQs (Q26 and Q27), the IRS accepts the value recorded by an exchange for exchange transactions and a blockchain explorer’s indexed value for others. An executor therefore has to pick a source and a time and be able to defend the choice; a documented, consistent method is easier to defend than a convenient one.
  3. Many tokens have no reliable price. Willing-buyer value for a token with thin liquidity, a lock-up or a concentrated holder base may differ sharply from the last printed trade. For income tax charitable deductions, the IRS has said an exchange price is not enough: Chief Counsel Advice 202302012, released in January 2023, concluded that a deduction over $5,000 for donated cryptocurrency requires a qualified appraisal, and that relying on an exchange price is not reasonable cause for skipping one. That memo addresses section 170, not estate tax, but it shows how the IRS views self-reported crypto values. A large holding also raises the question whether selling it would move the market.
  4. Under 26 U.S.C. §2032, an executor may elect to value all property in the gross estate six months after death instead; property sold, distributed or otherwise disposed of within those six months is valued at that date. The election is allowed only if it reduces both the gross estate and the estate tax (lesson 7.1.5). Crypto’s volatility can make the gap between the two dates very large in either direction. Because the election covers all the property in the estate, it cannot be applied to the crypto alone, and an estate that owes no estate tax cannot use it, since the tax cannot go down.
  5. Reported values flow to heirs. Under 26 U.S.C. §1014(f), an heir’s basis in property whose estate tax value has been finally determined may not exceed that value, and §6035 requires executors who must file Form 706 to give the IRS and each recipient a statement of the reported value, made on Form 8971. An undervaluation saves estate tax but lowers the heirs’ basis and raises their later gains. It can also bring penalties: under §6662(g), a substantial estate valuation understatement exists if a claimed value is 65% or less of the correct amount, and under §6662(h) the 20% penalty doubles to 40% when the claimed value is 40% or less.
  6. UK inheritance tax also starts from date-of-death value: HMRC’s CRYPTO25000 says cryptoassets are treated like other estate assets and their date-of-death value should be provided with the inheritance tax return, and notes that cryptoassets do not qualify for loss on sale relief. A practical check for either system: for each holding, record the asset, quantity, wallet or account, price source, exact timestamp used and a saved export of that price; for thinly traded tokens, add a short note on why the figure reflects what a willing buyer would pay. A file like that answers most valuation questions before they are asked.

Key facts

  • Treas. Reg. §20.2031-1(b) values property in a gross estate at fair market value, the price between a willing buyer and a willing seller with reasonable knowledge of relevant facts.
  • The Form 706 instructions direct executors to report digital assets, including cryptocurrencies, stablecoins and NFTs, on Schedule F.
  • Treas. Reg. §20.2031-2(b) values listed stocks and bonds at the mean between the highest and lowest quoted selling prices on the valuation date.
  • Chief Counsel Advice 202302012 concluded that a charitable deduction over $5,000 for donated cryptocurrency requires a qualified appraisal.
  • Under 26 U.S.C. §6662(g), a substantial estate or gift tax valuation understatement exists when a claimed value is 65% or less of the correct value.
  • Under 26 U.S.C. §1014(f), an heir’s basis may not exceed the property’s finally determined estate tax value.

Exercise nine, six, three, one

9CollectList up to 9 crypto holdings in a real or hypothetical estate (some lists are shorter), from widely traded coins to thinly traded tokens, NFTs, staked or locked positions and stablecoins.
6ClusterSort them into 6 categories: major coins with deep markets, stablecoins, small-cap tokens with some trading, tokens with almost no trading, NFTs, and locked, staked or otherwise restricted positions.
3DistillReduce the 6 categories to 3 groups: holdings with a readily documented market price, holdings needing a judgment about the right price source, and holdings likely to need an appraiser.
1CrystallizeWrite 1 sentence explaining, in your own words, why a low estate tax value for crypto can cost the heirs later.

Fact check

Dates, figures and claims checked against the published sources listed below.

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