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Trust Law/Level IX · Trusts on chain/9.1 Digital assets in trust/Lesson 6

Valuing volatile assets in trust

How US tax law values crypto held at death or given away, when the alternate valuation date can apply, why donated crypto over $5,000 needs a qualified appraisal, and how volatility tests a trustee’s duty of impartiality.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

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 estate tax under the 2026 basic exclusion of $15,000,000, so the key task is recording date-of-death value, which becomes the heirs’ basis (IRC §1014). Catch: record each price’s source, date and time, applied consistently (Notice 2014-21).
  2. Where estate tax is due and prices fall, elect six-month alternate valuation on Form 706 (IRC §2032). Catch: it must reduce both the gross estate and the tax, covers all assets, and is lost if the return is filed over a year late.
  3. For charity, give coins held over a year directly: the deduction is market value with no capital-gains tax, up to 30% of AGI with a five-year carryover (IRC §170). Catch: over $5,000 needs a qualified appraisal on Form 8283 Section B.
  4. Gifts of coins up to $19,000 per recipient in 2026 need no gift-tax return, but the recipient takes the donor’s basis (IRC §1015), unlike inherited coins. Catch: for heavily appreciated coins, holding until death usually saves more capital-gains tax than gifting.

MaterialsIRS Notice 2014-21, which treats virtual currency as property for federal tax purposes, free on the IRS websiteIRC §§1014, 2031 and 2032, free on the Cornell Legal Information Institute websiteIRS Chief Counsel Advice 202302012 and the IRS Instructions for Form 8283, both free on the IRS website

Wonder

  1. How is a ‘fair market value’ fixed for an asset whose price can move sharply within a single day?
  2. Why can an executor choose a valuation date six months after death only when doing so lowers the tax?
  3. How can a trustee be fair to income and remainder beneficiaries when a trust holds a volatile asset?

Explore

  1. In the US, Notice 2014-21 says virtual currency is treated as property for federal tax purposes, so general property tax rules apply to it. Where a virtual currency is listed on an exchange with a market-set rate, its fair market value is found by converting it into US dollars at that rate, ‘in a reasonable manner that is consistently applied’. No statute or regulation names a particular exchange or time of day, so a trustee or executor usually records the source, date and time of each price used. This lesson explains the rules; it is not tax advice.
  2. For federal estate tax, IRC §2031 includes in the gross estate the value at the date of death of property the decedent owned, which includes crypto and assets in a revocable trust (lesson 3.1.7). Under §1014, property acquired from a decedent generally takes a basis equal to its fair market value at death, or at the alternate valuation date if one is elected; for an asset bought at a lower price, this ‘step-up’ removes the earlier gain. The step-up depends on how the asset passes: in Rev. Rul. 2023-2, assets in an irrevocable grantor trust that were not included in the grantor’s gross estate got no basis adjustment at death (lesson 5.1.5).
  3. IRC §2032 lets the executor elect to value the gross estate six months after death instead of at death. The election covers all the property in the estate, not a single asset; property sold, distributed or otherwise disposed of within the six months is valued at the date of disposition. Under §2032(c), it may be made only if it reduces both the value of the gross estate and the estate and generation-skipping transfer taxes due, so it is not available to estates that owe no estate tax, and it cannot be used to raise the values, and so the basis, of assets that went up. The election is made on the estate tax return and is irrevocable.
  4. Charitable gifts of crypto follow a different rule. In Chief Counsel Advice 202302012 (released January 2023), the IRS concluded that a taxpayer claiming a charitable deduction of more than $5,000 for donated cryptocurrency must obtain a qualified appraisal under IRC §170(f)(11)(C). The exception for publicly traded securities did not apply, because cryptocurrency is not a security as the Code defines it for that purpose, and relying on an exchange’s price was not reasonable cause for skipping the appraisal, so the deduction was denied. Chief Counsel Advice cannot be cited as precedent, but the Form 8283 instructions also list digital assets among property needing a qualified appraisal.
  5. Volatility also tests a trustee’s duties. Under the Uniform Prudent Investor Act (1994), §6, a trustee of a trust with two or more beneficiaries must act impartially, taking account of their differing interests, such as those of an income beneficiary and the remainder beneficiaries; §3 requires diversification unless the trustee reasonably decides that special circumstances make it unnecessary, and the trust terms can change these defaults (lesson 8.3.2). An asset that pays no income and swings widely in value can favour one class over the other, and state principal and income laws may give the trustee a power to adjust between income and principal (lesson 8.3.3).
  6. Good records matter because values change fast. A trustee or executor typically keeps the price source, date and time for each valuation, the wallet or account records showing what was held, and any appraisals. For estates that must file an estate tax return, the executor may also have to report the values to the IRS and to the beneficiaries so that their basis is consistent with the estate tax value (IRC §§1014(f) and 6035). Rules and figures change by year, so the current IRS forms and instructions should be checked; this lesson does not suggest any valuation method or any decision about electing the alternate date.

Key facts

  • Under IRS Notice 2014-21, virtual currency is treated as property for US federal tax purposes, valued in US dollars at an exchange rate applied reasonably and consistently.
  • IRC §2031 includes property in the gross estate at its value at the date of death.
  • Under IRC §1014, inherited property generally takes a basis equal to its value at death, or at the alternate valuation date if elected.
  • IRC §2032 allows valuation six months after death for the whole estate, only if this reduces both the gross estate and the estate and GST tax.
  • In CCA 202302012 (2023), the IRS said a charitable deduction of more than $5,000 for donated cryptocurrency requires a qualified appraisal; an exchange price is not enough.
  • Under UPIA §6, a trustee of a trust with two or more beneficiaries must act impartially between them, which volatile assets make harder.

Exercise nine, six, three, one

9CollectList up to 9 valuation rules or duties from this lesson or a source you are reading (some sources give fewer), such as how crypto is valued, which date is used, when an appraisal is needed and what a trustee must record.
6ClusterSort them into 6 categories: how crypto is classified for tax, date-of-death value, basis at death, the alternate valuation date, charitable gifts and appraisals, and duties to beneficiaries.
3DistillReduce the 6 categories to 3 groups: what sets the value, what the value changes for tax, and what the trustee must document.
1CrystallizeWrite 1 sentence explaining, in your own words, why an exchange price alone was not enough for the charitable deduction in CCA 202302012.

Fact check

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

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