Did you know federal estate taxes are as high as 40%? Yes, 40% of your wealth, poof, gone to the IRS when you pass. Did you also know many states have their own estate taxes? States like Hawaii and Washington reach rates as high as 20%. Could you imagine? A huge portion of your hard earned money clawed away by the IRS instead of benefiting your kids and grandkids. This is why you want to read this all the way through, no matter your current net worth or age.
Estate planning is critical for all families to ensure their assets avoid probate (avoid your bitcoin stack becoming public knowledge), are passed according to their wishes, assign guardianship for minor children, establish trustees or powers of attorney to act on your behalf if you were to become incapacitated, and protect your wealth from creditors. But with the extreme federal estate tax rates and time running out to take advantage of the important rule changes coming soon in 2026, I want to discuss why it’s important for you (as a bitcoiner) to pay attention to your estate plan right now and how an intentional, proactive plan could save you $1M-$10M+ in taxes when you pass. And yes, this applies to you now even if you’re young (especially if you’re young and own 10+ bitcoin).
What are the important rule changes?
So, admittedly (this will sound rude), I left an important clarifying point out regarding the federal estate tax rates, because I wanted to get your attention. That point – there’s an exemption. Now, in 2017 that exemption was $5,490,000. Meaning, the first $5,490,000 of anyone’s estate could pass, avoiding estate taxes entirely. But after the TCJA was signed into law, the estate exemption effectively doubled to $11,180,000 in 2018. Today, the exemption stands at $13,610,000 per person or effectively $27,220,000 per married couple. This is a lifetime exemption amount you can effectively plan around now or wait until you pass and let the chips fall where they may. One important point to drive home is any gift above the annual limits count towards your lifetime exemption. For example, if I gave you $1M tomorrow, my lifetime exemption would drop by $1M, because I effectively “used” part of it.
Don’t write this off if you are below those exemption limits… even if you’re significantly below those current limits. Why? That exemption is set to be cut in half, dropping down to $6M – $7M per person starting in 2026 (depending on inflation adjustments). Now, you still may be thinking this doesn’t apply to you, but if you own bitcoin, it does, because… it’s bitcoin and if bitcoin continues to do bitcoin things, then who knows what it will be worth (in fiat terms) by the time you pass. You could have over 30+ years of compounding growth still ahead of you, so even if your estate is small now, it could (and should) grow substantially over the coming decades.
Who should be reviewing their estate plan because of this?
If any one of these is true, that’s a sign you should at minimum do more research:
- Current net worth at or above $5M for individuals and $10M for couples.
- Own 10+ bitcoin
- Equity in a fast growing company
- Plan to pass assets down to younger generations
- Have more assets than you will need for financial freedom
- Reasonably expect your net worth to surpass exemption levels in your lifetime
Why should you care?
Well, if your net worth is already around these exemption levels then it’s pretty clear why you should care about this, right? You likely became a bitcoiner because you don’t like or trust the government and similar institutions, so why would you be willing to hand them up to 40% of your wealth above the exemption level when you pass?
Let’s review a quick example:
John and Susan are 45 years old with a net worth of $10 million. $2 million of that is in Bitcoin. They have 3 kids that are in early adulthood or about to leave the nest. They are still working and earning a respectable household income. Keep in mind these are hypothetical scenarios, I would never recommend someone put their entire stack into an irrevocable trust, but that keeps things simple for example purposes.
Scenario 1: They do nothing with the information I’ll outline in this article. The estate tax exemption drops to $6.5 million in 2026 or $13 million for them as a married couple. Still below the post cut exemption levels, but they are only 45. Their assets have potentially 40 more years of growth ahead.
Now, they will spend down their assets in retirement, so let’s just say they are committed to not spending the bitcoin. They spend everything else, but want to pass the Bitcoin down. $2,000,000 worth of Bitcoin today growing at 15% annually would be $535,727,092 in 40 years when they turn 85. You may scoff at a 15% growth rate, but as of now Bitcoins lowest CAGR over any 4 year period is 25%. You as a Bitcoiner know that’s easily possible.
Alright, so they spent the remaining assets and held the bitcoin. If the 2026 assumed exemption level is $6,500,000 and that grows by 2% per year over the next 40 years, the exemption will be $28,704,515.
I’m sure you can see where I’m going with this. When they pass at 85, their estate (bitcoin) is valued at $535,727,092. They get to exclude $28,704,515, leaving $507,022,577 as taxable. If rates are the same then as they are today (40%) they would pay $202,809,030 in estate taxes. Could you imagine?
Scenario 2: They listen to their intelligent financial planner and move bitcoin out of their estate into an irrevocable trust structure that best suits their situation. They effectively use $2,000,000 of their exemption to do this. So their estate exemption drops from $6,500,000 down to $4,500,000.
That $2,000,000 in Bitcoin grows at 15% per year for 40 years to $535,727,092 and when they pass that full amount goes to their heirs tax free.
Again, they spent everything else, so the remaining estate is small and they owe zero dollars in estate taxes.
I hope that drives the point home very well. And I didn’t even use higher numbers! If your net worth is close to or above the current exemption levels of $13.61 million ($27.2 million per couple) and you own a significant amount of that in bitcoin, then you should consult a financial planner ASAP! You can effectively use that exemption while it’s doubled and while your assets are at lower values compared to 10-40 years from now. Again, these are strictly hypothetical scenarios and should not be taken as financial advice.
Planning Opportunities Before 2026
In scenario 2 mentioned earlier, I hinted at utilizing this exemption to move assets out of your estate prior to it being cut in half in 2026. But as the example hopefully demonstrated, this can be powerful even if your estate is well below those current exemption levels. So if your net worth is at or above the current exemption levels, then this rule change is absolutely urgent for you to consider. If not, then you may still have time, but Bitcoin can grow quickly, so it’s important to have an advisor that is proactively monitoring these strategies to utilize them when it makes sense for you.
There are multiple ways to get assets out of your estate to avoid the extreme tax. I’ll share a few high level things here:
1. Gifting
If a gift is under $18,000 per recipient ($36,000 per couple per recipient) then you do not have to report that to the IRS and it does not count toward the lifetime estate exemption I highlighted earlier. It may not seem like a large amount, but if it’s done consistently and strategically, it could avoid a significant amount of taxes. And be a win-win, because you are passing the assets to your loved ones.
2. Irrevocable Trust Structures
Irrevocable trusts are a key tool for high net worth families to avoid estate taxes on their assets when they pass. By definition, irrevocable trusts cannot be changed once they are established and funded. Assets that you put into an irrevocable trust are effectively no longer owned by you, therefore they are no longer included in your estate. When those assets leave your estate, they decrease the available amount of your lifetime estate tax exemption by the total value of the assets. For example, if you move $13 million worth of bitcoin into an irrevocable trust, your remaining available exemption drops to $610,000 based on this year’s exemption limit numbers. Now, even though they are not owned by you any longer, you still dictate what happens with the assets by the type of trust you create and the guidelines you include in the trust documents. There are many, seemingly endless types of irrevocable trusts that you can establish. I will not go into them in this article, but I will cover them in the future. It’s important to work with your financial planner and estate attorney to decide what’s right for you and your family.
3. Donate to your Church or Charity
If you’re feeling generous, you can always donate to your church or various charities to get assets out of your estate and put them to good use making this world a better place. In fact, there are irrevocable trust structures that allow you to give generously and also pass down assets to future generations effectively blending multiple strategies into one.
4. Spend the money
I had to say it. If you would rather spend the money now to enjoy your life and create meaningful experiences with your loved ones then do it. Determining how much you can spend without running out of money in retirement is foundational to what we do as financial planners. So even though accumulating wealth and avoiding taxes is a fun game if you will, remember what’s important. It’s okay to spend the money you’ve worked hard to earn on meaningful things that benefit you and your loved ones today rather than 20-30 years from now.
*Don’t forget, it’s not all or nothing decisions you must make. You can blend any combination of strategies that work well for you, your family, and your goals. That is the benefit of working with financial planners that are bitcoiners, because they can help put all the various pieces together into a complete financial plan.*
We Can’t Predict the Future
To be fair, it’s important to note that although the estate exemption is set to drop 50% beginning in 2026, that could change. Trump and his administration could decide to extend the elevated exemption into the future. On the flipside, they could cut it even further. All this to say, we don’t know what the future holds and all we can do is make the best decisions possible with the present facts. We’ll see how things change.
The Most Popular Way to Avoid Estate Taxes
Outside of the more straightforward options mentioned previously, the most popular way for wealthy families to avoid estate taxes is to leverage irrevocable trusts. And the opportunities those trusts provide, are amplified when we consider contributing and holding bitcoin within them over the long term. However, there are some unique challenges or considerations with bitcoin as well. Let’s review the pros and cons of contributing bitcoin into an irrevocable trust to pass on generational wealth for your family.
Why Bitcoin is the Best Asset for Irrevocable Trusts
Tax Efficiency
Bitcoin has no forced income events like stocks, bonds, real estate, or some other LP investment like oil and gas. Stocks pay dividends. ETFs and Mutual Funds pay out distributions. Bonds pay interest. Real estate produces cash flows from tenants. Oil and gas investments pay royalties. Businesses produce profit or may even have a liquidation event upon exit. The point is Bitcoin does not subject the trust or the grantor to taxable events unless intentionally chosen. In the case of a grantor trust, the creator of the trust pays the trust related taxes. If an asset besides Bitcoin was held, then they would need to plan from a cash flow perspective to pay the related taxes. That may even require them to liquidate assets of their own, creating another taxable event, almost like a chain reaction. Overall, this reduces the total wealth either within the trust or for the individual. It’s an unnecessary tax leak or tax drag on overall wealth accumulation or preservation. In essence, you are forced to pay more to the IRS and live on less or pass less to your grandchildren.
Additionally, unlike real estate, bitcoin requires no property taxes. Again, if you placed an apartment building into a trust or any other real estate investment for that matter, you or the trust would still be required to foot the bill for the annual property taxes. Yet another tax drag on your wealth.
Low Carrying Costs
Real estate has high carrying costs. Property taxes (mentioned above), insurance, legal protection, property management, maintenance, required renovations/upgrades, and potential damage from tenants or natural disasters which may be covered by insurance, but likely still require some out of pocket costs and lead to lost rent. These carrying costs lead again to a wealth accumulation or preservation leak that is unavoidable with real estate.
Stocks, bonds, or other traditional investments may have less carrying costs, but they still exist. To avoid concentration in one company, many people would prefer to own an index for long term generational wealth transfer and index funds have expense ratios attached. Depending on the custodian, you may owe regular fees.
Bitcoin could be held with very little to no carrying costs. I say could, because within an irrevocable trust structure, it’s likely prudent to hold your bitcoin with a qualified custodian. This doesn’t mean you have to go to coinbase, there are other options and more players will continue to enter the space. I know… I know… I know… you hate that word. It’s not required by any means, but likely prudent for long term security of your bitcoin. Because when you pass those assets into a trust like this, you are effectively giving up ownership to the trust and you can no longer control or benefit directly from the assets. So if you continue to hold the private keys, your trust would not be legally recognized.
Divisible & Highly Liquid
Bitcoin is infinitely divisible unlike stocks, bonds, and real estate. Try selling 1/10th of that building to donate to charity. Not going to happen. Try liquidating 25% of that business the trust holds. Not going to happen. That muni bond you own, can’t be split. Now those stock/ETF shares, could be. But Bitcoin is still more easily divisible than them all.
Bitcoin is highly liquid. Traditional assets like stocks and bonds can normally be sold fairly easily, but only within market hours. Not on holidays or weekends. That office building? Good luck selling that within 6 months without taking a significant haircut off market value and getting brokers/lawyers involved. Bitcoin is more liquid than any of the alternatives.
Less Counterparty Risks
Real estate has quite a few counterparty risks. Tenants destroy your building. Property management steals from you or mismanages the property. Local legislation causes you to pay higher taxes or decreases the value of your property due to the location. Real estate is also physically bound to the geographical domain it’s within. If your state is the center for a US civil war, there’s nothing you can do. The insurance company can and will fight you to get out of paying any claims. You get my point.
Stocks are reliant on the business continuing to perform. A bad CEO or faulty product could cause things to go awry at any point. After all, based on history, just because a company is at the top of their game or the largest company in the world, it doesn’t mean it will be for the next 10-20 years. Maybe the country the company is located in regulates them to death or moves in a different direction like electric vs gas vehicles for example. The point is, the potential counterparty risks associated with owning a stock is substantially greater than many people realize.
Bitcoin on the other hand allows you to nearly remove all counterparty risks. It’s a decentralized, digital bearer asset that isn’t reliant on any one party to operate. It can be transacted anywhere in the world and has the total addressable market of every human on the planet. There are risks to bitcoin of course, but the number of potential risk vectors is significantly less than real estate or stocks.
Appreciation Potential
Bitcoin cannot be debased. Stocks can issue more shares. People will always build taller, bigger buildings. Bitcoin is the only strictly fixed supply asset in existence where ownership and total supply are verifiable. When you’re putting assets into an irrevocable trust, you want something that will last for multiple generations. Bitcoin has the greatest potential for long term value appreciation and an irrevocable trust structure allows you to pass assets to the next generation completely avoiding the current 40% federal estate taxes. So if you put $1M worth of bitcoin into a trust today and that turns out to be worth $20M in 30 years, you just avoided $8M in taxes and that much less bitcoin passed down to your heirs. That’s powerful.
Global Accessibility, Security, & Censorship Resistant
Bitcoin can be accessed from or moved anywhere in the world by the trustee or beneficiaries when appropriate. Bitcoin is more secure than physical gold or real estate which can be stolen or damaged. You can send bitcoin to any person or organization at any time without the permission of a third party. Imagine you created a trust that gives to charities that support mission work. Your trustee goes to distribute money from the trust to the charity and the transaction gets denied, because it is a christian organization. Bitcoin fixes that.
It seems like a no brainer right? Well as with every other decision in financial planning, there are trade offs. Let’s review the potential downsides to contributing bitcoin to an irrevocable trust.
Why You May Not Want to Hold Bitcoin in an Irrevocable Trust
Lack of Control/Flexibility
Irrevocable trusts are inherently rigid, often difficult or impossible to modify once established, which can create challenges for Bitcoin holders. If personal financial circumstances change, such as needing additional funds for retirement or other unforeseen needs, the Bitcoin in the trust remains inaccessible. Additionally, Bitcoin’s nature as a long-term asset may clash with the static structure of an irrevocable trust, limiting flexibility to align with evolving financial goals. Moreover, future legislative changes, such as new tax laws or targeted Bitcoin regulations like a wealth tax or special reporting requirements, could diminish the advantages of holding Bitcoin in such a structure. The inability to adjust your estate plan or withdraw Bitcoin from the trust to respond to these changes further underscores the potential drawbacks of this arrangement.
Custody Limitations
Any assets placed into an irrevocable trust by definition are no longer owned or controlled by the settlor of the trust. The settlor (also known as the grantor, trustor, or creator) is the individual who creates a trust by transferring assets into it. In doing so, the settlor establishes the trust’s terms, determines how the assets should be managed, and specifies how they will eventually be distributed to the beneficiaries. Now, bitcoiners are typically champions for self custody, after all, not your keys, not your coins. But if you place Bitcoin into an irrevocable trust you must sever dominion and control of the Bitcoin. Translation… you can’t continue to hold the keys yourself.
As the settlor, you must sever dominion and control of the assets, so that the irrevocable trust is legally enforceable. If not, you wasted time and money on attorneys, plus you will owe the taxes you were looking to avoid. From there now, you must assign a trustee or multiple trustees to manage the assets within the trust. These trustees can hold the keys to the bitcoin or they can simply manage the assets while they are held at a qualified custodian. So you have some decisions to make… who will be the trustee and who will hold the keys?
Legally the trustee cannot be (or should not be if you want this to work) a related or subordinate party to you, creator of the trust. So, your wife, brother, sister, uncle, or other related party cannot be the trustee. It also cannot be someone who works for you in your business or anyone else you have substantial influence over.
What are your options then? Most likely a qualified custodian, someone you’re not extremely close with that you would entrust 7 figures worth of bitcoin (no one), or possibly a multi-sig setup where multiple trusted parties hold keys, but you don’t.
The point is, there is a custody problem that must be addressed and can be a turn off for bitcoiners (rightfully so). However, the alternative tradeoff is likely paying a 40% estate tax and that doesn’t sound good either. This is why it’s critical to consult a financial planner that understands bitcoin to help you navigate all of these considerations.
No Step Up In Basis
Assets within an irrevocable trust do not receive a step up in cost basis when it passes to beneficiaries like it would if it were held outside of an irrevocable trust. This is more a consideration around which tax lots of bitcoin you would like to contribute to the trust, not whether or not you would utilize an irrevocable trust at all, but still a consideration nonetheless.
Risk of 6102 Attack
Is this likely? Not really, but it’s worth mentioning. Assets within an irrevocable trust are more vulnerable to a 6102 attack, because they are likely held with a qualified custodian that will almost certainly comply with government regulations no matter what the consequences are for their clients.
What’s The Bottom Line?
The bottom line is that you should be aware of the estate tax rules, understand your options to avoid estate taxes, and plan accordingly considering you hold Bitcoin which could very easily put us all in the danger zone of giving a substantial amount of our financial legacy to the IRS instead of our kids and grandkids.
Act Now to Preserve Your Bitcoin Wealth
For Bitcoiners, the scheduled sunset of the estate tax exemption presents both a challenge and an opportunity. By acting now, you can lock in the current higher exemption limits and protect your growing Bitcoin wealth from future estate taxes. Estate planning is not just about reducing taxes—it’s about ensuring that your hard-earned wealth is passed on securely to the next generation. Don’t wait until it’s too late. Start exploring your estate planning options today to take full advantage of the current exemption limits before they expire. Schedule a call with a trusted advisor from the network to receive personalized guidance today.
Mitchell Moore
Strong Wealth