Introduction

According to a study by Chainalysis, it is estimated that around 3.7 million bitcoins were lost by 2020, out of a total supply of 21 million tokens that will eventually be mined. This loss is largely attributed to forgotten seed phrases or private keys and the deaths of the holders.

As Cryptocurrency gains prominence as a store of value, assets like Bitcoin, Ethereum, and other digital tokens can represent significant wealth. As more individuals invest in this space, the importance of managing these assets responsibly grows. Unlike traditional bank accounts, crypto assets are entirely controlled by the individual owner, meaning the loss of access keys can result in permanent loss of assets. This reality has stirred important questions about digital assets’ fate following their owners’ demise. What happens to these assets after death? Are they lost forever? Is there a way to ensure they are passed on to loved ones? And, most importantly, can these issues be prevented?

This article explains practical steps to protect crypto assets and ensure they can be successfully passed on to heirs.

Cryptocurrency and Estate Laws

Estate laws govern the transfer of a person’s assets after their death, determining how property, money, and other belongings are distributed to heirs and beneficiaries. These laws can vary significantly between countries and even between states or provinces within a country, but they generally cover the distribution of the deceased assets with or without a written will.

In estate law, cryptocurrency, particularly Bitcoin, is recognized as personal property, similar to stocks or real estate; however, unlike these traditional asset classes, locating and accessing cryptocurrency can be technical for the untrained person. Cryptocurrencies were developed with the sole purpose of putting the holder in control. It is only ideal that cryptocurrencies are included in a will to specify who should inherit it, with clear details regarding the blockchain, private keys, and access instructions securely documented and made available to the estate executor. Without this information, the crypto assets could as well be lost forever.

How to Pass on and Protect Your Crypto After Death

Early planning ensures your cryptocurrency is passed on after your death. There are several ways to achieve this, with the most practical solutions being:

Documentation

Creating a clear record of all your crypto holdings, including wallet addresses, private keys, and seed phrases, will help your executor or anyone who will inherit your assets track down the assets. It is advisable to store the document in a secure location. You can consider storing physical documents in banks that provide vault services and have an established process of contacting your beneficiaries. Use USB or external hard drives for electronic records, securing them with passwords for added protection.

Remember that each storage option has inherent risks, such as theft of physical documents and hacks or corruption of electronic documents.

Sharing Information with Trusted People

You can provide private keys or seed phrases to a trusted family member or legal representative. However, you must consider whether these individuals understand cryptocurrency or can be taught how it works. You don’t want to entrust your assets to someone who might lose access or mishandle the assets due to a lack of understanding. Suppose your family members or legal representatives are not technically inclined. In that case, you might consider appointing a third party, like a trusted friend with experience in cryptocurrency or even a professional service specializing in crypto estate planning. Some third-party services provide secure vaults for private keys and legal structures for managing digital assets.

Safety Tip

When sharing sensitive information like private keys and seed phrases with trusted persons, it is advisable to split the record into two, keeping one part of the document with them and the other in a will or bank vault. Also, involving more than one person in your crypto estate planning is often helpful, creating a system of checks and balances to avoid putting all your trust in a single individual.

Multi-Signature Wallets

Multi-signature (or multi-sig) wallets offer a powerful solution for securing and managing cryptocurrency, especially when planning to inherit crypto assets. Unlike traditional wallets that rely on a single private key to authorize transactions, a multi-sig wallet requires the approval of multiple keys (or “signatures”) before any funds can be moved.

A multi-signature wallet operates on a simple principle: instead of a single private key holder having total control over the assets, multiple parties are assigned keys. The wallet can be set up to require a specific number of these keys to approve transactions. For example, a “2-of-3” multi-sig wallet would require two out of three key holders to agree before transferring any funds. With a multi-sig wallet, no single individual has sole control over the assets, thus preventing unauthorized transfers or loss due to misplaced keys.

For instance, you could set up a multi-sig wallet with yourself, a trusted family member, and your legal executor as key holders. In the event of your death, the wallet could be configured so that the executor and your family member would need to approve the transfer of assets to the beneficiaries jointly. This ensures that your crypto holdings remain secure during your lifetime but are still accessible to your heirs after you’re gone.

What Happens to Crypto Assets Held on Centralized Exchanges After Death

When cryptocurrencies are held on centralized exchanges, the account holder does not have direct custody of the assets. However, some exchanges offer support for transferring funds to the next of kin, provided the necessary documents, such as a death certificate and proof of authority to manage the deceased’s assets, are submitted. For instance, an executor can provide a copy of the will or legal authorization from a court.

If a trusted person, such as a next of kin, has access to the deceased’s login credentials (e.g., email and password), they might technically be able to access the account. However, this could violate the exchange’s Terms of Service. Most exchanges prohibit third-party access without explicit consent from the account holder, and attempting to do so may breach the contract and, in some jurisdictions, could lead to legal issues, such as fraud charges or unauthorized access.

Third-Party Services Managing Crypto Inheritance

These platforms have developed solutions to help users safely hand crypto assets to their beneficiaries.

Casa

Source: Casa

Casa offers a streamlined solution for crypto inheritance through its multi-key vault system, allowing users to ensure their digital assets are securely passed to their loved ones. The process involves designating a recipient who can eventually access the assets using a secure combination of mobile keys and Casa Recovery Keys. In the event of the owner’s death, the recipient requests access, and after a six-month waiting period, they can unlock the vault. This removes the complexity of handling hardware wallets and seed phrases, making inheritance smoother for families without advanced technical knowledge. Casa supports assets like Bitcoin, Ethereum, USDT, and USDC, and offers flexible options for different investor levels.

Nunchuk

Source: Nunchuk

Nunchuk is a Bitcoin wallet service that also offers inheritance planning as one of its features. It uses a multi-sig wallet (a 2-of-4 multisig), such that in the event of death, the co-signers (like a lawyer or trusted family member) will help heirs recover the Bitcoin, following a predetermined plan. It also has a “Dead Man’s Switch” feature, which ensures the transfer process starts automatically if the user does not confirm their presence via a proof of life test after a set period.

Vault12

Source: Vault12

The Vault12 platform allows crypto investors to designate trusted individuals (Guardians) to manage their digital inheritance. To set up inheritance, the user activates the feature within the Vault12 app and assigns a beneficiary. When the time comes, the beneficiary can initiate the inheritance process, which can be verified by contacting the Guardians. Once the required confirmations are obtained, the assets are securely transferred to the designated beneficiary. Vault12 provides inheritance for Cryptocurrencies, NFTs, and Digital art.

Relevant Legal Considerations

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) is a U.S. law that grants fiduciaries (like executors, trustees, and guardians) access to a person’s digital assets and electronic communications after death or incapacitation. Its goal is to balance privacy rights with the need for fiduciaries to manage a person’s estate, which increasingly includes digital assets like social media accounts, emails, and online financial accounts.

RUFADAA allows the following;

• It allows individuals to specify who can access their digital assets in a will or legal document.
• Fiduciaries can only access digital assets that are not protected by federal privacy laws unless explicitly authorized.
• Service providers (like social media platforms) must comply with RUFADAA provisions.

Conclusion

Your cryptocurrency’s safety and responsibility for passing it on to your heirs are in your hands. Develop a well-thought-out and secure plan that aligns with your needs while incorporating your cryptocurrency into your estate. Consulting with a legal advisor can help ensure that you are using the most compliant methods while also considering the technical complexities of cryptocurrency.

It’s important to ensure your executors and beneficiaries can handle these digital assets. You might also explore third-party services that specialize in managing cryptocurrency inheritances. In addition, stay informed about the laws surrounding digital asset inheritance to ensure your plans remain legally compliant and secure.