This article is a community submission. The author is Richard Marshall, a crypto lawyer based in England.
Views in this article are of the contributor/author and do not necessarily reflect those of Binance Academy.
The decentralized nature of crypto assets presents a few unique challenges when passing on one’s crypto after death.
You need to carefully consider how your crypto can be located, identified, and accessed upon death to benefit your loved ones.
There are many solutions, ranging from written seed phrases to encrypted private keys to a dead man's switch.
What Happens to Your Crypto After You Die?
As cryptocurrency continues to gain popularity, it’s becoming increasingly important to consider what happens to your crypto assets when you pass away.
Estate planning is a common practice to ensure your traditional assets are distributed according to your wishes. But when crypto assets are added to the mix, there are unique challenges that need to be taken into account.
With a plethora of software, hardware and exchanges on which crypto assets could be held, locating and identifying crypto assets is the first hurdle to overcome when someone dies.
If the wallets and accounts cannot be accessed due to a lack of information relating to private keys, seed phrases, or pin numbers, any effort to locate and access these assets could end up in vain. This means your crypto, such as bitcoin, ether, or other altcoins, could be lost forever.
Here’s how you can plan for this eventuality as a crypto holder or recover the deceased’s assets as a beneficiary.
How to Pass On Your Crypto After Death
If you want to pass on your crypto after death, it’s critical to plan early. There are many options to do this, but the most common solutions include the following.
Physical, low-tech solutions
Paper and pen
At a basic level, private keys and seed phrases can be written down and stored securely in a safe with instructions on how to access your assets upon your death. This simplicity comes with trade-offs, as the information could be stolen, lost, or destroyed in your lifetime or after death.
For added security, this information can be stored in a secure vault at banks that offer insurance protection and have a mature process in place for your beneficiaries or the executor of your will to obtain access upon your death.
USB or hard drive
An alternative would be to save private keys and seed phrases on a USB or external hard drive and password protect this information to ensure it doesn’t fall into the wrong hands. The most significant risk is that the USB or hard drive could be damaged or corrupted, making the information inaccessible. It’s advisable to make multiple backups if this is your preferred method.
If the files are password protected, you’ll still need to store the password somewhere, which could be written down and stored securely or saved with an online password manager.
These options come with risks such as theft and hacks, so crypto holders should be mindful to ensure their beneficiaries are knowledgeable on how to recover assets through these means.
Private keys and seed phrases could be shared in an encrypted email to a trusted recipient, with instructions on how funds can be accessed upon death. This method is heavily reliant on the trusted individual to follow these instructions without compromising the security of the encrypted email during your lifetime.
A third-party hosting site can also be used to access the encrypted email, which may require a password to gain access. However, if the third-party hosting site ceases to exist, this information could be lost.
Dead man’s switch
You can also set up a dead man’s switch, which would release your private keys to a nominated recipient if you fail to verify that you’re alive.
This verification can be as simple as accessing an email or performing a quick task and can be set up to run weekly, monthly, or at other intervals. If you fail to verify your presence by a certain time, the dead man’s switch will be activated, and the private key information will be released automatically to your nominated recipient.
There is one big caveat to this method. You could fail to verify your presence due to issues other than death, such as illness or a lack of internet connection. Another issue is that nominating someone to receive your crypto access information might not necessarily mean you intend for them to take benefit of those assets or that the law will permit this form of asset transfer in your jurisdiction.
If you decide to implement a dead man’s switch in your end-of-life plan, be sure to consult an expert on how to do this safely to ensure that the assets are transferred to your beneficiaries.
Social recovery via data custodial services
You can use social recovery via data custodial services, whereby multiple guardians are named to come together upon the holder’s death and reconstitute the deceased’s access information.
The custodial service provider usually asks to verify the death with the appropriate documentation. Some of these services are hosted on traditional websites, while others are on-chain, providing an additional layer of security.
In using such services, it’s essential to choose the best guardians and set appropriate terms. It’s also important to approach custodial services with caution if they permit private key reconstitution by a majority of guardians without requiring the verification of the death of the account holder.
It’s also important to state clearly whether those nominated as guardians are to only receive the access information or whether they should also benefit from the crypto assets.
Smart Contract Wallets on Ethereum & Legacy Wallets
Ethereum’s smart contract wallets allow multiple signatories and are a good option for social recovery. You can create a legacy multisig wallet with yourself and your beneficiaries as the wallet holders. With this method, a majority of the parties will need to verify any transactions, even during your lifetime.
On death, the wallet will be accessed by the co-owners and one or more personal representatives of the deceased, thereby smoothly transitioning the access from the deceased to nominated beneficiaries.
Another form of legacy wallets can be created to allow crypto to be transferred to the wallet and placed in a physical safe custody vault during your lifetime. No third-party access can be obtained during your lifetime. On death, the personal representatives would have to provide proof of death and a court order showing their authority to access the deceased’s assets, they could then access the wallet. Such physical safe custody vaults usually offer insurance protection.
How to Incorporate Crypto Assets in Your Will
There is a distinction between nominating someone to have access to your crypto and wanting them to benefit from such assets. It’s important to ensure that any crypto asset planning is incorporated into traditional estate planning.
The law in each jurisdiction dictates how assets can pass on death, which is usually via a will. Given that the majority of jurisdictions throughout the world don’t recognize digital wills and still rely on paper-based wills with wet signatures, it’s imperative to ensure that all wishes regarding your crypto assets are legally recognized.
It can be done by setting out the will to mirror how private keys pass to the recipient on death or to clarify who should benefit from the underlying assets if this differs from the guardian or nominee.
What Happens to Crypto Assets Held on Exchanges After Death
Centralized crypto exchanges often provide assistance in locating and accessing crypto assets upon the account holder’s death.
If the deceased had the exchange’s app on their smartphone or laptop and the account was set up to log in automatically once opened, identifying the assets the deceased held can be a straightforward task.
However, anyone dealing with the estate of the deceased should be careful about accessing such accounts after death. For example, this could be a criminal offense in England under The Computer Misuse Act 1990. Each exchange also has its own rules about divulging passwords and granting third-party access in their Terms of Service.
To avoid unknowingly breaking the law, the executor of the will should contact the exchanges to inform them of the death and provide all relevant information and documents. The right way to do this is usually set out in Terms of Service of the exchange. This step usually requires proof of death, such as a death certificate and proof that you have the authority to deal with the crypto assets of the deceased account holder. For example, the executor of the will can provide a copy of the will or court authority.
How to Access Private Keys as a Beneficiary
If you hold your crypto in self-custody wallets, such as hardware wallets or paper wallets, it’s important to put a plan in place to allow a few trusted individuals to access your private keys once you’ve passed.
In most cases, there are some ways to recover these assets, even if the deceased didn’t have a plan in place. Files containing private keys could be saved on one of their devices, or papers with the seed phrases could be found in their notebooks or safes. But if the deceased has taken additional steps to protect their private keys, via encryption or password, for example, then it becomes much harder to locate the private keys. This also means that the deceased's digital assets could be lost forever.
Can You Pass On Your Mining or Dao Roles Upon Death?
There are questions around whether play-to-earn games should continue to be played after death, and if so, by whom. There’s also controversy surrounding who will benefit from royalties from NFTs or unminted works, as well as what would happen if the deceased was engaged in mining, crypto airdrops, or DAOs.
All of these things can be clarified in a will or accompanying letter of wishes, but adequate thought must be given to all the possible issues and practicalities.
Having a succession plan in place where your crypto assets can be located, identified, and accessed on death is key. It’s best to make your crypto assets planning part of your overall will setup process. You must ensure the will is legally recognized and the crypto asset portion meets your local jurisdiction requirements.
Without this, your beneficiaries could be left fighting over crypto assets through complicated legal processes, or your crypto assets could be lost forever.