This article is a community contribution. The author is Richard Marshall, a cryptocurrency lawyer from the UK.
The opinions expressed in this article are those of the contributors/authors and do not necessarily reflect the views of Binance Academy.
Summary
Crypto assets are inherently decentralized, so the transfer of crypto assets after the owner's death presents some unique challenges.
You need to consider carefully how your crypto assets can be found, identified, and accessed after your death to benefit your loved ones.
There are many solutions available today, including handwritten mnemonics, encrypted private keys, and dead man’s switches.
What happens to your crypto assets after you die?
As the cryptocurrency craze continues, it becomes increasingly important to consider what happens to your crypto assets after you die.
Estate planning is a common practice throughout history to ensure that your traditional assets are distributed according to your wishes. However, crypto assets present some unique challenges in this regard.
With so many software, hardware, and trading platforms that can hold crypto assets, finding and identifying crypto assets after the owner passes away is the first hurdle to overcome.
If you lose access to your wallets and accounts due to a lack of information related to your private keys, mnemonics, or passwords, it becomes nearly impossible to find and access those assets. This means that your crypto assets, such as Bitcoin, Ethereum, or other altcoins, could be lost forever.
You can plan ahead for your crypto assets or recover the assets of the deceased as a beneficiary through the following methods.
How to leave crypto assets as an inheritance after death
If you want to leave crypto assets to others after your death, it’s important to plan early. There are many ways to do this, but the most common solutions include the following.
Low-tech physical solutions
Pen and paper handwriting
At its simplest, you could write down your private keys and mnemonics and store them in a safe, along with instructions on how to access your assets after your death. This approach is simple, but there is a trade-off, as this information could be stolen, lost, or destroyed during your lifetime or after your death.
For added security, this information can be stored in a secure vault at a bank that offers insurance protection and has established procedures to allow your beneficiaries or executors to gain access upon your death.
USB or hard disk
Another option is to save the private key and mnemonics on a USB or external hard drive and then set a password to ensure that this information cannot be stolen. However, the biggest risk is that the USB or hard drive may be damaged or destroyed, making the information inaccessible. If this is your preferred method, it is recommended to prepare multiple backups.
If you set up password protection for the files inside, you will also need to store the password somewhere. You can write the password down and keep it safe, or you can save it using an online password manager.
However, these options all carry risks such as theft and hacking, so crypto asset holders should be careful to ensure that their beneficiaries understand how to recover their assets through these means.
Advanced Solutions
Encrypted Email
You can share your private key and mnemonic phrase with a trusted recipient in an encrypted email, along with instructions on how to access your assets after your death. However, the reliability of this method depends largely on whether the person you trust can follow these instructions while you are alive without compromising the security of the encrypted email.
There are also third-party hosting sites that can be used to access encrypted emails, which may require a password to gain access. However, if the third-party hosting site no longer exists, the information is gone.
Disable switch
You can also set a kill switch, which will periodically challenge you to verify that you are alive, and if you fail to verify that you are alive, it will release your private key to a designated recipient.
This verification is as simple as sending or receiving an email or performing a quick task, and can be set to run weekly, monthly, or other intervals. If you fail to verify that you are alive within a certain period of time, the kill switch will be activated and the private key information will be automatically released to the recipient you specified.
But there is an important caveat to this approach. You may not be able to verify that you are "alive" for reasons other than death, such as illness or disconnection from the Internet. Another problem is that the designated recipient of the crypto asset access information is not necessarily the ultimate beneficiary, so there are certain risks in the middle. In addition, the law may not allow this form of asset transfer in your jurisdiction.
If you decide to implement a disability switch in your end-of-life plan, be sure to consult with an expert on how to do this safely to ensure a smooth transfer of assets to your beneficiaries.
Social recovery through data hosting services
You can also use social recovery through a data hosting service, which is to appoint multiple guardians to come together after the asset holder dies and reorganize the deceased person's access information.
The hosting provider will usually ask for proper documentation to verify the death. Some services are hosted on traditional websites, while others are on-chain, which provides an extra layer of security.
When using such services, one must carefully select the most suitable guardians and set appropriate terms. Also, be very cautious with custodial services if they allow a majority of guardians to reconstruct private keys without verifying whether the account holder is actually dead.
It is also important to clearly state whether the nominated guardian will only receive access information or if they will also benefit from the legacy crypto assets.
Ethereum Smart Contract Wallet and Legacy Wallet
Ethereum’s smart contract wallets allow for multiple signers and are a good option for social recovery. Crypto asset holders can create a multi-signature legacy wallet with themselves and the beneficiaries as wallet holders. Using this method, any transaction by a majority of the signatories needs to be verified, even if the holder is still alive.
Upon the holder’s death, the wallet will be accessed by the co-owners and one or more representatives of the deceased, smoothly transferring access from the deceased to the designated beneficiaries.
Another form of estate wallet can also be created, where crypto assets are transferred to the wallet during one’s lifetime and stored in a physical secure vault. No third party can gain access until the holder dies. Upon the holder’s death, the personal representative must provide a death certificate and a court order showing that they have the right to access the deceased’s assets before they can access the wallet. This physical vault usually provides insurance protection.
How to Include Crypto Assets in a Will
Nominating someone to access your crypto assets does not designate them as a beneficiary of the assets. It is critical to ensure that any crypto asset planning is incorporated into traditional estate planning.
The laws of each jurisdiction dictate how property is transferred upon death, which is usually done through a will. Given that most jurisdictions around the world do not recognize electronic wills, only paper wills with handwritten signatures, it is imperative to ensure that all will content related to crypto assets is legally recognized.
A will can be used to specify how private keys should be passed to recipients upon death, or to clarify who should benefit from the underlying assets (if the beneficiary is different from the guardian or nominee).
What happens to the crypto assets on the trading platform after death?
Centralized cryptocurrency exchanges typically assist relevant parties in locating and accessing crypto assets after the account holder’s death.
Identifying the assets held by the deceased may be simpler if they had the trading platform’s app installed on their smartphone or laptop, and the account was set up to automatically log in once it was opened.
However, anyone dealing with an estate should exercise caution when accessing such accounts after the death of the deceased. For example, accessing another person's account can be a criminal offence in the UK under the Computer Misuse Act 1990. Each trading platform also has its own rules in its terms of service about disclosing passwords and granting access to third parties.
To avoid unwittingly violating the law, the executor should contact the exchange to inform it of the death and provide all relevant information and documents. The exchange will usually set out the correct way to do this in its terms of service. This step usually requires proof of death, such as a death certificate and evidence that you have the authority to deal with the deceased account holder's crypto assets. For example, the executor can provide a copy of the will or court authorization.
How does the beneficiary access the private key?
If you keep your cryptocurrency in a self-custodial wallet, such as a hardware wallet or a paper wallet, you must have a plan in place to allow some trusted person to access your private keys after your death.
Generally speaking, there are ways to get these assets back even if the deceased didn’t make a plan. You might find a file containing the private key on their mobile device, or a note with a recovery phrase in their notebook or safe. However, if the deceased took additional measures to protect the private key, such as through encryption or a password, then it will be more difficult to find the private key. This also means that the deceased’s digital assets may be lost forever.
Can you pass on your mining progress or DAO role to someone else after you die?
Others have asked whether a player’s progress in a play-to-earn game can continue after his or her death, and if so, who should play it. There is also controversy in the industry over who can benefit from royalties on NFTs or unminted works, and what happens after death if the deceased was involved in mining, crypto airdrops, or DAOs.
All of these matters can be clarified in a will or in an accompanying letter of wishes, but full consideration must be given to all possible issues and practical circumstances.
Conclusion
The key is to have a succession plan in place so that your crypto assets can be found, identified, and accessed after your death. It is best to incorporate your crypto asset planning into the overall will-making process. You must ensure that the will is legally recognized and that the crypto asset portion complies with the regulations of your local jurisdiction.
Otherwise, your beneficiaries may have to fight for their crypto assets through complex legal proceedings, or your crypto assets may be lost forever.
Further reading:
What is a cryptocurrency wallet?
How to store digital currency safely
Terminology Explanation: Private Key
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