What Happens to Your Crypto When You Die

Assets nobody can access are assets that no longer exist. Crypto is the only common asset class where dying badly can destroy it entirely.

Why this is different from other assets

With a bank account, an executor produces a death certificate and a grant of probate, and the bank transfers the funds. The institution holds the asset and can be compelled to release it.

With self-custodied crypto there is no institution. The asset is controlled by a key, and if nobody knows the key exists or where it is, the funds are permanently inaccessible. No court order helps, because there is nobody to order.

This produces two distinct failure modes, and a good plan addresses both:

1. Heirs do not know the assets exist. Substantial holdings have been lost simply because nobody knew to look.
2. Heirs know but cannot access. They find a hardware wallet in a drawer and no seed phrase, which is the same outcome.

Custodial exchange accounts are more tractable — most have a deceased-account process requiring probate documents — but they are slow and depend on the platform still existing.

Building a plan

The design problem is that the information must be useless to an attacker while you are alive and sufficient to your heirs afterwards. Practical approaches:

• Separate the map from the key. Leave clear instructions describing what exists, where it is, and what to do — without the seed phrase itself. The instructions can be stored with your will; the key material is stored separately.
• Use a sealed letter with a solicitor, to be opened on death. Simple and well-understood by the professionals involved.
• Split the secret properly. Shamir secret sharing lets you distribute shares so that any two of three reconstruct the seed and any single share reveals nothing. Several hardware wallets implement this. Naive splitting — half the words here, half there — is worse than useless because losing one half loses everything.
• Use multi-signature. A two-of-three arrangement where a trusted person or a professional holds one key means no single point of failure and no need to hand over full control in advance.
• Consider a dead man's switch service that releases instructions after a period of inactivity — with the caveat that you are trusting a third party to still exist and to behave correctly.

What the instructions must contain

Write for someone who knows nothing about crypto, because that is who will read it:

• A list of what exists: which assets, roughly how much, on which networks.
• Where each is held: which exchange, which hardware wallet, which physical location.
• Where the seed phrase or key material is, and how to obtain it.
• Whether a passphrase exists — a seed phrase without it opens an empty wallet, and heirs will conclude there is nothing there.
• Step-by-step access instructions, written assuming no technical knowledge.
• A named person who can help, if your executor is not technical.
• A clear warning never to enter the seed phrase into any website, and never to accept help from anyone who contacts them. Bereaved families are targeted.

Review it whenever your holdings change materially, and at least annually. Stale instructions pointing at an exchange that no longer exists are close to useless.

Tax and legal considerations

Treatment varies substantially and professional advice is genuinely warranted where the amounts matter. Broadly:

• Inheritance or estate tax applies to crypto in most jurisdictions that levy it, valued at the date of death. Executors need that valuation and may need to justify it.
• Cost basis for heirs may reset to the date-of-death value, which can be a significant advantage or disadvantage depending on the jurisdiction.
• Executor liability. An executor who cannot access assets they must declare, or who loses them attempting access, is in a genuinely difficult position.
• Liquidity. Estate tax may be due before assets can be accessed or sold.

Discuss the arrangement with whoever drafts your will. Many solicitors are now familiar with digital assets; one who is not should be told explicitly that this asset class exists and behaves differently.