This article is a community contribution. It was written by Richard Marshall, a cryptocurrency lawyer based in England.
The opinions and ideas expressed in this article are those of the author/author and do not necessarily reflect the views of Binance Academy.
Summary
The decentralized nature of digital assets creates unique challenges when inheriting cryptocurrencies after death.
You should consider ways in which your cryptocurrencies can be found, identified, and accessed upon your death for your loved ones to benefit from.
Many solutions exist, from writing seed phrases to encrypting private keys to dead man's keys.
What happens to your cryptocurrencies after you die?
As cryptocurrencies grow in popularity, it is increasingly important to consider what will happen to your digital assets when you die.
Estate planning is a common practice to ensure that your traditional assets are distributed as you wish. But when you add cryptocurrencies, unique challenges arise that need to be taken into account.
Because there is so much software, hardware, and trading platforms on which to hold your digital currencies, finding and identifying your digital assets is the first hurdle a person's heirs face when they die.
If wallets and accounts are inaccessible due to the absence of information regarding private keys, seed phrases, or PIN numbers, efforts to find and access these assets can become futile. This means that cryptocurrencies, such as Bitcoin, Ethereum, and other altcoins, could be lost forever.
Here are ways you can plan for this eventuality as a cryptocurrency holder, or recover the deceased's assets as their heir.
How to inherit your digital currencies after your death
If you want to inherit your cryptocurrencies after your death, it's important to start planning early. There are many options that allow you to do this, but the most common solutions include the following.
Technically simple physical solutions
Paper and pen
A simple solution is to write down your private keys and seed phrases and store them in a secure vault with instructions on how to use them to access assets after your death. But this simplicity has its drawbacks, as the paper can be stolen, lost or damaged before or after your death.
For added security, this information can be stored in a secure safe that provides a secure and secure process for your heirs or executor to access it upon your death.
Hard disk or USB
Another alternative method is to save the private keys and seed phrases on a USB stick or external hard drive and protect this information with a password to ensure it does not fall into the wrong hands. But the biggest risk is that the USB disk or hard drive may be destroyed or damaged, making the information inaccessible. It is recommended to make several backup copies if this is your preferred method.
If your files are password protected, you will still need to store that password somewhere, and it can be written down, stored securely, or saved in an online password management program.
The risks of these options include theft and hacking, so holders of digital currencies should ensure that the heirs know how to recover assets through these means.
Advanced Options
Encrypted emails
Private keys and seed phrases can be shared via an encrypted email message addressed to a trusted person, with instructions to access the funds upon death. This method relies heavily on a trusted person to follow these instructions without compromising the security of the direct message in your life.
An external hosting site may also be used to access encrypted email, which may require a password to access. But if that site ceases to exist, information could be lost.
Dead man's key
You can also set up a dead man's key, which sends your private keys to a recipient you specify if you fail to confirm that you are alive.
Verification can be as simple as reading an email or performing a quick task, and it can be set up to repeat weekly, monthly, or for any other duration. If you fail to confirm that you are alive after a certain period of time, the Dead Man's Key will be activated, and the private key information will be sent to the receiving party.
But this method has a major drawback. You can fail to confirm that you are alive for reasons other than death, such as severe illness or lack of Internet access. Another problem is that nominating someone for access information to your cryptocurrencies does not necessarily mean that you want them to benefit from those assets or that the law allows this form of asset transfer in your jurisdiction.
If you decide to use a dead man's key in your plan, be sure to consult an expert on how to do so safely and in a way that ensures the assets are transferred to your heirs.
Social recovery via data custodial services
You can use social recovery through data custodial services, where a group of custodians are named who come together after the death of the asset owner and reconstruct the deceased's access information.
The service provider usually requests verification of the person's death using appropriate documents. Some of these services are hosted on traditional websites, while others reside on blockchains, adding a layer of security.
When using such services, it is important to choose the best guardians and set appropriate conditions. It is also important to treat custodial services with caution if they allow private keys to be reconfigured with majority consent without requiring verification of the account holder's death.
It is also important to clearly state whether the custodians are only interested in obtaining access information or whether they will benefit from the digital assets as well.
Smart contracts for Ethereum wallets and inheritance wallets
Ethereum smart wallets allow multiple signatories and are a good option for social redemption. You can create a multi-signature inheritance wallet that is owned by you and your heirs. This way, the majority of parties will have to confirm your transactions, even while you are alive.
Upon death, the wallet's owners or representatives of the deceased can access it, facilitating the seamless transfer of access to the wallet from the deceased to his heirs.
Another form of inheritance wallet can be created to allow digital currencies to be transferred to the wallet and placed in a custodial vault while you are alive. Third parties cannot access the wallet while you are alive. Upon death, your personal representatives will need to provide proof of death and a court order stating their authority to access the deceased's assets, and they will then have access to the wallet. These physical custodial vaults usually provide insurance services.
How to include digital assets in your will
There is a difference between nominating someone to access your digital currencies and wanting them to benefit from these assets. It is important to ensure that digital asset inheritance planning is integrated into traditional estate planning.
The law in each jurisdiction governs how assets are passed on death, usually by will. Since most jurisdictions around the world do not recognize digital wills and rely on paper wills and ink signatures, it is essential to ensure that all your wishes regarding the distribution of digital assets are legally recognized.
This can be done by preparing the will in such a way that it details the method of passing the private keys upon death and clarifies who will benefit from the assets other than the trustee or the candidate for inheritance.
What happens to digital assets on trading platforms after death
Centralized trading platforms typically provide assistance in finding and accessing an account holder's digital assets upon their death.
If the platform's application on the deceased's phone or laptop is set to automatically log you in when it is opened, determining the assets owned by the deceased can be a straightforward process.
But anyone dealing with the estate of a deceased person should be careful not to access such accounts after the death of their owner. It could be a criminal offense in a country such as England where the Computer Misuse Act 1990 applies. Each platform also has its own rules for disclosing passwords and granting access to third parties under its own rules of use.
To avoid ignorantly violating the law, the executor of the will must contact the trading platforms to notify them of the person’s death and provide all relevant information and documents. The correct way to do this is usually stated in the trading platform's terms of use. This step usually requires proof of death by submitting a document such as a death certificate and proof that you have authority to handle the digital assets of the deceased account holder. For example, the executor of a will can provide a copy of the will or court judgment.
How to access the private keys as a beneficiary of the will
If you hold your cryptocurrencies in a non-custodial wallet, such as hardware or paper wallets, it's important to have a plan in place for certain trusted people to have access to your private keys when you die.
In most cases, there are several ways to recover these assets, even if the deceased did not make a plan. The files containing the private keys can be saved on one of their devices, or the initial statements can be written on a piece of paper and placed in their books or in a private safe. But if the deceased takes additional steps to protect their private keys, such as through encryption or passwords, then the highly private keys will be difficult to find. This could also mean that the deceased's digital assets could be lost forever.
Can mining roles or DAOs be inherited after death?
There are questions about whether play-for-earning games should continue to be played after death, and who should do so. There is also controversy over who will benefit from the profits from royalties from non-tradable tokens or non-minted businesses, as well as what will happen if the deceased was involved in mining, free token distributions, or decentralized autonomous organizations.
All of these matters can be set out in a will or accompanying letters, but all potential issues and details should be considered.
Concluding thoughts
Creating an inheritance plan in which your digital assets can be found, identified, and accessed after your death is very important. It is best to make planning for the inheritance of your digital assets part of your general will. You should ensure that your will is legally recognized and that the digital assets portion complies with local regulations.
Without this, you may leave your heirs fighting over your digital assets after your death and getting involved in complex legal processes, or even losing access to them altogether.
Related articles:
What is a cryptocurrency wallet?
How to secure your digital currencies
Dictionary: private key
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