This article is a community submission. The author is Richard Marshall, a crypto lawyer based in England.
The views in this article are those of the contributor/author and do not necessarily reflect the views of Binance Academy.
TL;DR
When it comes to transferring cryptocurrencies upon death, the decentralized nature of crypto assets presents some challenges.
In order to benefit your loved ones, it is important to carefully consider how your cryptocurrencies can be found, identified and accessed after your death.
There are many solutions, from written seed phrases to encrypted private keys and a mechanism known as the "dead man's switch".
What will happen to your cryptocurrencies after you die?
As cryptocurrencies continue to gain popularity, it becomes increasingly important to consider what happens to your assets after death.
Estate planning is a common practice to ensure that your traditional assets are distributed according to your wishes. But when crypto assets are added to the mix, unique challenges arise that must be considered.
With a multitude of software, hardware and brokers in which crypto assets can be held, locating and identifying assets is the first obstacle to be overcome in the event of a death.
If it is not possible to access the wallets and account due to a lack of information related to private keys, seed phrases (recovery phrases) or PIN numbers, any attempt to locate and access the assets may end up being in vain. This means that your cryptocurrencies (bitcoin, ether or other altcoins) could be lost forever.
See how you can plan for this eventuality as a cryptocurrency holder or how to recover the deceased's assets if you are the potential beneficiary.
How to pass on your cryptocurrencies after death
It is essential that you plan ahead if you intend to pass on your cryptocurrencies after death. There are many options for doing 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 containing instructions on how to access your assets after your death. This simple option has some negative points, as information can be stolen, lost or destroyed.
For greater security, this information can be stored in a secure safe in banks that offer this type of service and have a reliable process so that the executor of your will or your beneficiaries can access it after 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 does not fall into the wrong hands. The most significant risk is that the USB or hard drive could become damaged or corrupted, making the information inaccessible. If this is your preferred method, it is advisable to make multiple backups.
If the files are password protected, you still need to store the password somewhere. It can be written down and stored securely or saved using an online password manager.
These options present risks such as theft and hacker attacks, so cryptocurrency holders must be vigilant to ensure their beneficiaries know how to recover assets through these methods.
Advanced solutions
Encrypted email
Private keys and seed phrases can be shared in an encrypted email to a trusted recipient, with instructions on how the funds can be accessed after death. This method relies heavily on trusting the designated person to follow these instructions without compromising the security of the encrypted email during its lifetime.
You can also use a third-party hosting site to access your encrypted email, which may require a password to grant access. However, if the third-party hosting site ceases to exist, this information may be lost.
Dead man’s switch
You can also configure a security mechanism known as a "dead man's switch". In case of death, that is, if you fail to confirm that you are alive, the mechanism would release your private keys to a previously defined recipient.
This check can be as simple as checking an email or performing a quick task, and can be set to run weekly, monthly, or at other intervals. If you fail to verify your presence by a certain time, the security mechanism will be activated and the private key information will be automatically released to the designated recipient.
However, there is a big caveat to this method. You may fail to check your attendance due to other issues such as illness or lack of internet connection. Another issue is that nominating someone to receive access information for your cryptocurrencies may not necessarily imply that you intend to benefit that recipient with your assets. Furthermore, in some jurisdictions the law may not allow this form of asset transfer.
If you decide to implement the dead man's switch mechanism, it is important to consult a specialist to ensure that the transfer of assets is carried out safely to the beneficiaries.
Social recovery through data escrow services
You can utilize social recovery through data custodian services, where multiple custodians are appointed to come together after the death of the data subject and reconstitute the deceased's access information.
The custodial service provider will usually ask for proof of death with appropriate documentation. Some of these services are hosted on traditional websites, while others are on-chain, providing an additional layer of security.
When using these services, it is essential to choose the best guardians and set appropriate terms. It is also important to exercise caution when dealing with custodial services that allow most custodians to reconstitute the private key without requiring proof of death of the account holder.
It is also important to make it clear whether those appointed as custodians should only receive the access information or whether they should also have rights to the cryptoassets.
Smart contract wallets on Ethereum and Legacy Wallets
Ethereum smart contract wallets allow multiple signers and are a good option for social recovery. You can create a legacy multisig wallet and set yourself and your beneficiaries as wallet holders. With this method, it is necessary for the majority of participants to verify all transactions, even during their lifetime.
In the event of death, the wallet will be accessed by the co-owners and one or more personal representatives of the deceased. This way, access is transferred to the named beneficiaries.
It is also possible to create another type of legacy wallet to allow cryptocurrencies to be transferred to the wallet and placed in a physical safe deposit box during your lifetime. No third party access can be obtained during your lifetime. In the event of death, personal representatives would have to provide proof of death and a court order demonstrating their authority to access the deceased's assets. Only then could they access the wallet. These physical safe deposit boxes often offer insurance protection.
How to include crypto assets in your will
There is a distinction between nominating someone to have access to your cryptocurrencies and wanting that person to benefit from those assets. It is important to ensure that any crypto asset planning is incorporated into traditional estate planning.
The law in each jurisdiction determines how assets can be transferred upon death, usually through a will. Considering that most jurisdictions around the world do not recognize digital wills and still rely on paper wills with physical signatures, it is essential to ensure that all wishes related to your crypto assets are legally recognized.
This can be done by establishing in the will how the private keys will be transferred to the beneficiary upon death, or by clarifying who should benefit from the underlying assets if the beneficiary is not the custodian or nominee.
What happens to crypto assets held in exchanges after death
Centralized cryptocurrency exchanges often offer help in locating and accessing crypto assets after the account holder passes away.
If the deceased had the brokerage app on their smartphone or computer and the account was set to log in automatically, identifying the assets they owned may be a simple task.
However, anyone dealing with the deceased's estate should be careful when accessing their respective accounts. For example, in England this could be considered a criminal offense under the Computer Misuse Act 1990. Additionally, each broker has its own rules about disclosing passwords and granting access to third parties in their Terms of Service .
To avoid inadvertently breaking the law, the executor of the will should contact brokers to inform them of the death and provide all relevant information and requested documents. The correct way to do this is usually set out in the broker's Terms of Service. This step typically requires proof of death, such as a death certificate, and proof that you have the authority to handle the account holder's crypto assets. For example, the executor of the will may provide a copy of the will or a court authorization.
How to access private keys as a beneficiary
If you keep your cryptocurrencies in self-custodial wallets, such as hardware wallets or paper wallets, it is important to come up with a plan that allows trusted people to access your private keys after you pass away.
In most cases, there are ways to recover assets even if the deceased did not create a plan. Files containing private keys may have been saved on one of your devices, or papers with seed phrases may be found in notebooks or safes. However, if the deceased took additional steps to protect their private keys, such as encryption or using a password, for example, it becomes much more difficult to locate the private keys. This also means that the deceased's digital assets could be lost forever.
Is it possible to pass on DAO or mining functions after death?
There are questions about whether play-to-earn games should continue to be played after the account holder's death, and if so, by whom. There is also controversy over who should benefit from royalties from NFTs or unissued works, as well as what would happen if the deceased was involved in mining, crypto airdrops, or DAOs.
All of these issues can be clarified in a will or supplementary letter of instructions, but you need to think carefully about all the possible problems and practicalities.
Final considerations
It is essential to have an established succession plan through which your crypto assets can be located, identified and accessed in the event of your death. The ideal is to include the planning of your crypto assets in the general process of preparing your will. You must ensure that the will is legally recognized and that your crypto asset estate complies with the requirements of your local jurisdiction.
Without this, your beneficiaries could end up fighting over the assets through complicated legal processes or, in the worst case, your cryptocurrencies could be lost forever.
Further reading:
What is a Cryptocurrency Wallet?
How to Protect Your Cryptocurrencies
Glossary: Private key
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