Bitcoin Community Property Estate Planning: The Double Step-Up Advantage Most Couples Miss

The 9 Community Property States — and Why They Matter Enormously for Bitcoin Holders

The United States has two fundamentally different systems for how married couples own property. Forty-one states follow the common law (also called "separate property" or "equitable distribution") system: each spouse owns what they earn, and joint ownership must be created intentionally. The other nine states follow the community property system: everything earned by either spouse during the marriage belongs to both spouses equally, 50/50, by operation of law.

This distinction — which most people never think about until divorce or death — has enormous consequences for Bitcoin holders. It determines who owns your Bitcoin, how it's divided in a divorce, how it's taxed when you die, and whether your surviving spouse pays hundreds of thousands of dollars in capital gains tax or zero.

The nine community property states are:

In the 41 common law states — including New York, Florida, Illinois, Pennsylvania, Ohio, and every other state not listed above — the default is that each spouse owns what they earn. Bitcoin bought with your paycheck in New York is your Bitcoin, not your spouse's, unless you choose to title it jointly.

In the nine community property states, Bitcoin bought with your paycheck is automatically owned 50% by each spouse — regardless of whose name is on the exchange account, regardless of who clicked the "Buy" button, regardless of who holds the private keys. This is not a choice. It is the default operation of state law.

Why does this matter so much for Bitcoin holders? Three reasons:

1. Tax at death: Community property gets a double step-up in basis when one spouse dies. Common law property gets only a single step-up. For a couple with $2M in appreciated Bitcoin, this difference can be worth $200,000+ in tax savings.
2. Divorce: Community property Bitcoin is split 50/50 automatically. There is no argument about "whose Bitcoin it is."
3. Ownership ambiguity: Bitcoin that is clearly one spouse's separate property (pre-marital, inherited, gifted) can become community property through commingling — and most Bitcoin holders have no idea this is happening.

If you live in one of these nine states and you hold Bitcoin, the community property rules are not optional. They apply to you whether you know about them or not. The question is whether you structure around them intentionally — or let them surprise you at the worst possible moment.

What Is Community Property? The Basics Every Bitcoin Holder Must Understand

Community property is a simple concept with complex implications. The core rule:

Applied to Bitcoin, this creates clear (and sometimes surprising) ownership rules:

Bitcoin That Is Community Property

• Bitcoin purchased with wages or salary earned during the marriage — regardless of whose paycheck funded it
• Bitcoin purchased with business income earned during the marriage — even if only one spouse runs the business
• Bitcoin purchased with proceeds from the sale of other community property
• Bitcoin earned from mining during the marriage (mining is labor; the fruits of labor during marriage are community property)
• Bitcoin purchased with community funds even if titled in one spouse's name only — the exchange account holder is irrelevant
• Investment returns on community property Bitcoin — including staking rewards, lending interest, and DeFi yields earned during the marriage

Bitcoin That Is Separate Property

• Bitcoin owned by one spouse before the marriage — even if it has appreciated 100× since then, the appreciation is typically still separate property (varies by state)
• Bitcoin received as a gift during the marriage — e.g., a parent gifts 1 BTC to their married child; it belongs to the child alone
• Bitcoin received as an inheritance during the marriage — even in community property states, inherited assets are separate property
• Bitcoin designated as separate property in a valid prenuptial or postnuptial agreement
• Bitcoin purchased with separate property funds that have been clearly traced and not commingled with community funds

The critical nuance: the character of property (community vs. separate) is determined by the source of funds used to acquire it, not by how it's titled. If a husband uses his salary (community property) to buy Bitcoin and puts it in an exchange account in his name only, it is still community property. His wife owns half by operation of law. This catches many Bitcoin holders off guard — especially those who self-custody and assume that possession equals ownership.

Conversely, if a wife inherited 10 BTC from her grandmother and keeps them in a separate wallet, those 10 BTC are her separate property — even if she lives in California and has been married for 20 years. The community property state doesn't transform inherited assets into community property. The protection depends, however, on keeping those funds separate and properly documented.

The Community Property Stepped-Up Basis Advantage

This is where community property states dominate common law states for married Bitcoin holders. The advantage is so significant that some couples in common law states create special trusts solely to access it.

A quick refresher: when someone dies holding appreciated property, the IRS resets the cost basis to the fair market value at the date of death. This is the stepped-up basis under IRC §1014. All the appreciation that occurred during the decedent's lifetime is permanently eliminated for income tax purposes.

In a common law state, only the deceased spouse's share of jointly held property receives the step-up. The surviving spouse's share retains its original cost basis.

In a community property state, under IRC §1014(b)(6), when one spouse dies, the entire community property — both halves — receives a stepped-up basis. Not just the deceased spouse's 50%. Both halves. The surviving spouse's half gets a new, stepped-up basis even though the surviving spouse is still alive.

This is the double step-up. It's one of the most powerful and least understood provisions in the Internal Revenue Code.

The advantage scales dramatically with position size. Consider a couple who accumulated 50 BTC at an average cost of $5,000 ($250,000 total basis), now worth $3.55 million. In a common law state, the surviving spouse faces capital gains on roughly $1.65 million of appreciation on their half — approximately $393,000 in federal capital gains tax. In a community property state, the surviving spouse pays zero.

For early Bitcoin adopters — couples who bought at $200, $1,000, or $5,000 per coin — the community property double step-up may be the single most valuable tax provision available to them. The cost basis is so low relative to current value that the step-up eliminates nearly the entire position's gain.

This advantage does not require any special planning, any special trust structure, or any filing. If you live in a community property state and your Bitcoin is community property, the double step-up happens automatically under IRC §1014(b)(6) when one spouse dies. You just have to make sure you don't accidentally destroy it — which is easier to do than you'd think (see Section 8 on trust structure).

Tracing Separate vs. Community Property Bitcoin

In theory, the line between separate and community property Bitcoin is clean. In practice, it's a mess — because Bitcoin holders rarely maintain the discipline required to keep the two categories separate.

The Commingling Problem

Commingling occurs when separate property and community property are mixed together in the same wallet, exchange account, or investment portfolio. Once commingled, the burden shifts to the spouse claiming separate property to trace their separate funds back to their original source.

Common commingling scenarios for Bitcoin holders:

• Pre-marital Bitcoin sent to a post-marital exchange account: You owned 5 BTC before marriage. After marriage, you open a new Coinbase account and deposit your pre-marital BTC alongside weekly DCA purchases funded by your paycheck. Your 5 pre-marital BTC are now mixed with community property BTC in the same account.
• Pre-marital Bitcoin consolidated into a hardware wallet with post-marital purchases: Your Ledger holds both your 2016 pre-marital purchases and your 2023 post-marital purchases at the same addresses (or different addresses on the same device with no clear separation).
• Pre-marital Bitcoin sold and repurchased with community funds: You sold your pre-marital BTC, deposited the proceeds into a joint bank account, and later bought BTC from the joint account. The community property character of the bank account may have converted the proceeds to community property.

How Tracing Works

In California and most community property states, the source of funds rule controls. This means: if you can trace a specific Bitcoin purchase back to separate property funds (pre-marital savings, inheritance, gift), the Bitcoin retains its separate property character — even if it's been held alongside community property.

Tracing requires documentation:

• Exchange records showing purchase dates, amounts, and funding sources
• Bank statements showing the origin of funds used for purchases
• Blockchain records showing transaction history and wallet addresses
• Wallet separation — distinct wallets or accounts for pre-marital and post-marital Bitcoin
• A contemporaneous written record of which Bitcoin is separate and which is community property

The stakes compound with appreciation. A $10,000 pre-marital Bitcoin purchase that's now worth $500,000 is a significant asset. If you can't trace it to separate property funds, it may be treated as community property — and split 50/50 in a divorce, or (more positively) receive the double step-up at death. The characterization has different implications depending on whether you're planning for divorce or estate planning, which is why clarity matters in all scenarios.

Prenuptial Agreements and Bitcoin in Community Property States

A prenuptial agreement can override the default community property rules. In a community property state, a valid prenup can designate all Bitcoin — present and future — as the separate property of whichever spouse acquires it. This removes Bitcoin from the community property regime entirely.

What a Bitcoin Prenup Can Do

• Designate pre-marital Bitcoin as separate property (confirming what is already the default, but creating a clear written record)
• Designate future Bitcoin purchases as separate property — even if purchased with marital earnings
• Designate mining income as separate property — overriding the default that mining income (as fruits of labor) is community property
• Establish specific wallets or accounts as separate property — creating a clear demarcation
• Set the rules for Bitcoin appreciation — specifying that appreciation on separate property Bitcoin remains separate

The Critical Trade-Off

Here's what most prenup discussions miss in the Bitcoin context: a prenup that converts Bitcoin to separate property eliminates the double step-up benefit.

If all Bitcoin is designated as the husband's separate property via prenup, and the husband dies first, only his half-interest gets a step-up. The wife — who has no community property interest in the Bitcoin — doesn't benefit from §1014(b)(6). She would only inherit Bitcoin through the estate, and the estate would get the standard single step-up.

Conversely, if the Bitcoin remains community property (no prenup, or prenup preserves CP status), both halves step up at the first death — the full double step-up.

Enforceability Requirements

Community property state prenups must generally meet these requirements to be enforceable:

• In writing, signed by both parties
• Each party must have had independent legal counsel (or knowingly waived it)
• Full financial disclosure by both parties — including all Bitcoin holdings
• Not unconscionable at the time of signing
• Signed voluntarily, without duress
• Signed with adequate time before the wedding (California requires 7 days minimum between presentation and signing)

Postnuptial Agreements

Already married? A postnuptial agreement (or "transmutation agreement" in California) can accomplish the same result — converting community property Bitcoin to separate property or vice versa. Postnups face stricter scrutiny than prenups in most states, but are enforceable when properly executed. In California, a transmutation of community property to separate property must be in writing with an express declaration — an oral agreement is not sufficient (Family Code §852).

Bitcoin Acquired by Mining in Community Property States

This is where community property law surprises most Bitcoin miners: mining rewards earned during the marriage are almost certainly community property.

The logic is straightforward. Mining is labor — it requires effort, skill, equipment operation, and ongoing management. In community property states, the fruits of either spouse's labor during the marriage are community property. It doesn't matter that only one spouse operates the miners, maintains the ASICs, or manages the pool. The output belongs to both spouses equally.

What This Means for Mining Couples

• All mined BTC during the marriage is community property — the non-mining spouse owns 50% of every satoshi mined
• The mining equipment itself may be community property — if purchased with marital earnings, the ASICs, GPUs, and infrastructure are jointly owned
• Mining business income is community property — if one spouse runs a mining company, the company's income (including BTC rewards) is community property
• Depreciation deductions benefit both spouses — the tax benefits of depreciating mining equipment flow through to both spouses' tax positions

The Silver Lining: Double Step-Up on Mined Bitcoin

There's an upside to mined Bitcoin being community property: at the first spouse's death, the entire mining stack receives the double step-up. If one spouse mined 20 BTC during the marriage at an effective cost basis of $15,000/BTC ($300,000 total), and the BTC is worth $1.42 million at the first death, both halves step up to $1.42 million. The surviving spouse can sell the entire position with zero capital gains — even though only one spouse did the mining.

This is particularly powerful for miners who accumulated Bitcoin at very low costs during the early years of their mining operations. The community property characterization, which may feel like a loss of control during the marriage, becomes a major tax advantage at death.

Divorce and Community Property Bitcoin

Community property states divide community property 50/50 in a divorce. No equitable distribution analysis, no consideration of who earned more or who managed the investments — a clean split down the middle.

How Bitcoin Is Divided in a CP Divorce

• Identify community vs. separate Bitcoin: All Bitcoin acquired during marriage with community funds is community property. Pre-marital, inherited, and gifted Bitcoin is separate (assuming proper documentation and no commingling).
• Value the community Bitcoin: Fair market value at the date of division (or a date agreed to by the parties). Given Bitcoin's volatility, the valuation date matters enormously — a 10% swing in BTC price can mean hundreds of thousands of dollars.
• Divide equally: Each spouse receives 50% of the community property Bitcoin, either in-kind (half the BTC) or through an offsetting distribution of other assets.

Tax Treatment of Divorce Transfers

Under IRC §1041, transfers of property between spouses incident to a divorce are not taxable events. No capital gains tax is triggered when Bitcoin moves from one spouse to the other as part of the divorce settlement. The receiving spouse takes a carryover basis — the same cost basis the transferring spouse had.

This means: if the couple bought 10 BTC at $5,000/BTC during marriage ($50,000 total basis), and each spouse receives 5 BTC in the divorce, each spouse's 5 BTC has a basis of $25,000. No tax is due on the transfer itself. But when either spouse later sells their 5 BTC (now worth $355,000), they'll pay capital gains on $355,000 − $25,000 = $330,000.

Hidden Bitcoin and Discovery

One of the unique challenges in Bitcoin divorce cases is discovery — finding all the Bitcoin. Unlike bank accounts, brokerage accounts, or real estate, Bitcoin can be self-custodied and is not automatically reported to any government agency. A spouse who wants to hide Bitcoin can move it to a hardware wallet and deny its existence.

Courts are increasingly sophisticated about digital asset discovery. Forensic blockchain analysis, exchange subpoenas, and examination of tax returns (which should show Bitcoin transactions) are standard tools in high-net-worth Bitcoin divorce cases. Hiding community property Bitcoin in a divorce is not only unethical — it's perjury and contempt of court, with severe consequences when discovered.

QDROs and Retirement Account Bitcoin

If Bitcoin is held inside a retirement account (self-directed IRA, solo 401(k)), the division in divorce follows different rules. A Qualified Domestic Relations Order (QDRO) is required to divide employer-sponsored retirement plans. For IRAs, a transfer incident to divorce can be accomplished without a QDRO but must follow specific IRS procedures. The community property characterization still applies — retirement account contributions made during the marriage with community earnings are community property — but the mechanics of division are more complex.

Estate Planning Structures in Community Property States

The double step-up is the headline benefit of community property for Bitcoin holders. But to actually capture that benefit, you need the right estate planning structure. The wrong titling or the wrong trust can accidentally destroy the community property character of your Bitcoin — and with it, the double step-up.

How Community Property Passes at Death

Without any planning at all, community property passes according to the deceased spouse's will — or, if there's no will, by the state's intestacy laws. In most community property states, the deceased spouse's half of community property passes to the surviving spouse by default under intestacy, but not always entirely (some states give a portion to children). Without a trust, the estate goes through probate — a public, court-supervised process that is slow, expensive, and entirely avoidable.

The Community Property Revocable Trust

The optimal structure for most Bitcoin-wealthy couples in community property states is a community property revocable trust. This is a trust created by both spouses that holds their community property and is explicitly designated as a community property trust under state law.

A properly structured community property revocable trust:

• Preserves community property character: This is the most critical function. Assets placed in the trust retain their community property status, ensuring the double step-up under §1014(b)(6) applies at the first death.
• Avoids probate: Assets in the trust pass to beneficiaries without going through probate — saving time, money, and keeping the estate private.
• Maintains flexibility: Both spouses can amend or revoke the trust during their lifetimes. Either can withdraw community property at any time.
• Controls disposition: The trust agreement specifies what happens to each spouse's share at their death — to the surviving spouse, to children, to other beneficiaries.

Community Property Agreement

Some community property states (notably Washington and Wisconsin) allow couples to execute a community property agreement — a simple document that confirms the community property character of specified assets and provides for automatic transfer to the surviving spouse at death, bypassing probate. This is simpler than a trust but provides less control over disposition and no protection for minor beneficiaries.

Pour-Over Will + Revocable Trust

A pour-over will is a safety net: it directs that any assets not already in the trust at death should "pour over" into the trust. For Bitcoin holders who may hold some BTC in self-custody outside the trust, the pour-over will ensures those assets are captured by the trust's terms — though they will go through probate first. The goal is to fund all Bitcoin into the trust during life, making the pour-over will unnecessary in practice.

The Irrevocable Trust Trade-Off

Irrevocable trusts — dynasty trusts, SLATs, GRATs — are powerful estate tax reduction tools. But transferring Bitcoin to an irrevocable trust removes it from the community property regime. Once Bitcoin is in an irrevocable dynasty trust, it is no longer community property — it's trust property. The double step-up under §1014(b)(6) no longer applies.

For most Bitcoin-wealthy couples in the $3M–$15M range, the double step-up dominates. Keep the core Bitcoin position as community property in a revocable trust. Use irrevocable trusts for the portion above the estate tax exemption or for specific multi-generational planning goals.

Entity Structures for Bitcoin in Community Property States

Some Bitcoin holders — especially miners — use LLCs, corporations, or other entities to hold their Bitcoin or conduct mining operations. In community property states, the entity structure interacts with community property law in ways that create both opportunities and traps.

Community Property LLC

An LLC owned by both spouses (50/50) in a community property state is a community property LLC. The LLC interests are community property. At the death of either spouse, both halves of the LLC interests receive the double step-up — and the step-up flows through to the underlying assets, including Bitcoin held by the LLC.

This structure works well for couples who want entity-level liability protection while preserving the community property treatment. The LLC can hold Bitcoin, operate mining equipment, or manage a Bitcoin investment portfolio — all while maintaining community property character.

Separate Property Entity for Mining

What if one spouse wants to keep mining income as separate property? It's possible, but requires careful structuring:

• Fund the entity with pre-marital (separate) assets: If the LLC or corporation is capitalized entirely with one spouse's separate property funds, the entity itself may be separate property
• Avoid using community property funds for equipment, electricity, or operating expenses — any community property contribution can create a community property interest in the entity
• Pay fair market compensation to the mining spouse — the salary is community property, but the entity's retained earnings and Bitcoin may remain separate property if the entity was funded separately
• Document everything — the separate property character of the entity must be clearly established and maintained

This structure is complex and requires an attorney experienced in both community property law and business entity formation. The IRS and state courts will scrutinize the arrangement, especially in a divorce. But for a spouse who entered the marriage with significant mining infrastructure funded by pre-marital assets, it can preserve the separate property character of mining output.

The Trade-Off

Holding mining operations in a separate property entity preserves the separate property character — but it also eliminates the double step-up on those mining proceeds at death. If the mining spouse dies, only their separate property interest in the entity gets a single step-up. The community property LLC, by contrast, provides the double step-up on all mining output at the first death.

The optimal choice depends on which risk looms larger: divorce (favoring separate property) or estate taxes (favoring community property for the double step-up). For couples in strong marriages focused on estate planning, the community property LLC is typically the better structure.

Moving Between Community Property and Common Law States

Americans move. A lot. And when a married couple moves from a community property state to a common law state (or vice versa), the property characterization doesn't always move with them cleanly.

Moving from a CP State to a Common Law State

When you move from California to New York, your community property Bitcoin doesn't automatically become common law property. It retains its community property character. Several states recognize this concept formally:

• California: Recognizes "quasi-community property" — community property from other states retains its character for divorce and estate purposes
• Washington, New Mexico, Arizona: Also recognize quasi-community property in varying forms
• Most common law states: May not explicitly recognize community property character, creating ambiguity at death or divorce

The critical question: does the double step-up under §1014(b)(6) apply to former community property held by a couple now domiciled in a common law state? The IRS position is generally yes — if the property was validly community property when acquired, it should qualify for §1014(b)(6) regardless of the couple's current domicile. But this area is not without controversy, and proper documentation of the community property character is essential.

Moving from a Common Law State to a CP State

Bitcoin purchased during marriage while living in New York does not magically become community property when you move to California. The characterization was set at the time of acquisition. Bitcoin bought with wages in New York is the earning spouse's separate property under New York law — and it stays that way after the move.

However, Bitcoin purchased after the move to California — with wages earned in California — is community property. The move date creates a clean line: pre-move purchases follow the old state's rules; post-move purchases follow the new state's rules.

This creates an interesting planning opportunity for couples moving to a community property state: any Bitcoin purchased after the move will automatically be community property and eligible for the double step-up. Couples who are planning a move to a CP state may want to time their largest Bitcoin purchases for after the move.

Domicile Complications

Domicile — your permanent legal residence — determines which state's community property rules apply. Changing domicile requires more than just changing your address. It typically requires:

• Physical presence in the new state
• Intent to make the new state your permanent home
• Changing voter registration, driver's license, and other indicia of domicile
• Filing state tax returns in the new state (and, critically, not filing in the old state — unless required)

For Bitcoin holders making strategic moves for tax or estate planning purposes, establishing clean domicile in the new state is essential. Half-measures — maintaining a home in both states, spending significant time in the old state, keeping an old state driver's license — create domicile disputes that courts will resolve against you.

California-Specific Bitcoin Issues

California deserves its own section because it has the largest concentration of Bitcoin holders in the nation, the strictest community property rules, and the most aggressive tax authority. If you hold significant Bitcoin and live (or have lived) in California, these issues affect you directly.

California's Strict Community Property Rules

California community property law is among the most protective of community property character. Key features:

• All earnings during marriage are community property — wages, salary, business income, bonuses, stock options vested during marriage, and mining income
• The community property presumption is strong — property acquired during marriage is presumed community property; the burden of proof to establish separate property character is on the spouse claiming it
• Transmutation requires a writing — under Family Code §852, a change in property character (community to separate or vice versa) must be in writing with an express declaration. Oral agreements are not enforceable.
• Commingling is heavily scrutinized — California courts apply the "source of funds" tracing method, but when tracing is impossible, the commingled asset may be treated as community property

The Franchise Tax Board (FTB) Reach

California's Franchise Tax Board is famously aggressive. Key Bitcoin implications:

• CA-source income is taxed regardless of domicile: If you leave California but have continuing CA-source income (e.g., a CA business, CA rental property, or CA clients), the FTB will tax that income at CA rates (up to 13.3%)
• CA reaches trusts with CA beneficiaries: A trust with a California beneficiary may be subject to California income tax — even if the trust is situs'd in another state and the trustee is outside California
• California domicile exit is the hardest in the nation: The FTB audits departing high-income taxpayers aggressively. Simply moving to Texas or Nevada doesn't end CA tax obligations if the FTB determines you haven't fully established domicile elsewhere

California and the Double Step-Up

California follows federal law on the stepped-up basis — there is no separate California rule that overrides or modifies §1014(b)(6). Community property Bitcoin held by California residents receives the full double step-up at the first death, the same as in Texas or any other CP state.

However, California's high state income tax rate (up to 13.3%) makes the double step-up even more valuable for California couples. The step-up eliminates both the federal capital gains tax and the California capital gains tax on the surviving spouse's share. For a couple with $2M in appreciated Bitcoin, the California state tax savings alone from the double step-up can exceed $80,000.

Prop 19 and Real Estate — Not Bitcoin

Proposition 19 (2020) changed California's property tax reassessment rules for real estate transfers. This does not affect Bitcoin. Prop 19 is purely a real estate property tax provision. However, couples doing holistic estate planning in California need to be aware of Prop 19's impact on the real estate portion of their estate, even as they optimize the Bitcoin portion through the community property double step-up.

Community Property Trust: The Best of Both Worlds for Common Law State Residents

What if you live in New York, Florida, New Jersey, Illinois, or another common law state — and you want the double step-up? You may not need to move.

Several states have enacted community property trust statutes that allow married couples — including non-residents — to create trusts that elect community property treatment for the assets held within. If properly structured, assets in these trusts may qualify for the double step-up under IRC §1014(b)(6).

States with Community Property Trust Statutes

How It Works: The Alaska Community Property Trust Example

A married couple living in New York creates an Alaska community property trust. They appoint an Alaska trustee (required). They transfer their appreciated Bitcoin into the trust. The trust agreement elects community property treatment under Alaska law.

At the first spouse's death, the argument is: the Bitcoin held in the Alaska community property trust is community property under Alaska law, and therefore qualifies for the double step-up under IRC §1014(b)(6). Both halves step up. The surviving spouse inherits Bitcoin with a fully stepped-up basis and can sell with zero capital gains.

This strategy is increasingly popular and is supported by a growing body of legal analysis. However, it has not been definitively tested in IRS litigation, and the IRS could challenge it. The arguments in favor are strong — §1014(b)(6) refers to "community property" without limiting it to residents of community property states — but there is legal risk.

The IRS Risk Factor

As of 2026, the IRS has not issued definitive guidance on whether community property trusts created by non-resident couples in common law states qualify for the §1014(b)(6) double step-up. The lack of direct challenge by the IRS is encouraging, and several private letter rulings have supported the position. But PLRs are not precedent, and the IRS could change course.

The conservative approach: use the community property trust for the potential double step-up, but don't rely on it as the only estate planning strategy. Layer it with other tools — SLATs, lifetime gifting, charitable strategies — so the overall plan doesn't collapse if the IRS challenges the community property trust election.

Practical Steps for Bitcoin Couples in Community Property States

1. Audit your Bitcoin ownership: For each Bitcoin position, determine: Was it acquired before or after marriage? With community or separate funds? Has it been commingled? This determines whether you get one or two step-ups.
2. Structure your trust correctly: Have an estate attorney in your state draft a community property revocable trust — not joint tenancy, not a simple joint revocable trust, but specifically a community property trust. Titling matters enormously.
3. Title your Bitcoin correctly: Move Bitcoin into the community property trust. Exchange accounts and institutional custody accounts should be titled in the trust's name. For self-custody Bitcoin, execute an assignment agreement.
4. Keep separate property separate: If you have pre-marital Bitcoin, maintain it in a completely separate wallet. Don't commingle. Document its separate property character.
5. Update your Letter of Instructions: Your digital asset letter of instructions should distinguish between community and separate property Bitcoin — including which wallet addresses hold which.
6. Model the trade-off: If your estate is approaching the exemption threshold, model the double step-up vs. dynasty trust scenario with your attorney and CPA. The right answer depends on your specific numbers.
7. Consider a CP trust if in a common law state: If you live in a common law state with $500K+ in unrealized Bitcoin gains, ask your attorney whether an Alaska, Tennessee, or South Dakota community property trust could provide the double step-up benefit.

Frequently Asked Questions