What Happens to Your Crypto After Death? Here’s How to Protect It
With research from Gemini suggesting the average crypto investor is just 38 years old, contemplating what happens to digital assets when they die may not seem a high priority.
But given how unpredictable life can be — and the decentralized nature of blockchains — it’s crucial for HODLers to put a plan in place should the worst happen. Failing to do so can mean funds are lost forever, denying their loved ones an inheritance.
Reddit is full of countless examples where grieving parents, partners and children have been left unable to gain access to Bitcoin investments, and without a private key, little can be done.
So, while it may be incredibly uncomfortable to think about your own mortality, taking a little time to understand your options and get your affairs in order is worth doing now.
Centralized Exchanges: Your options
First, let’s kick off with some good news: things can get a little bit simpler if you use a centralized crypto exchange like Coinbase.
That’s because this platform does allow family members to gain custody of the funds in your account after your death.
However, they’ll need to provide a wealth of documents in order to prove any coins are legitimately theirs — including a death certificate, probate documents, photo ID, and a signed letter confirming where the crypto should be sent. In a frustrating turn of events, Coinbase does not allow you to name a beneficiary to your account, which would mean your savings are automatically passed on to your next of kin.
If you use a self-custodial alternative such as a hardware wallet, it’s important to remember that the manufacturer won’t be able to assist your family as they try to recover the private keys.
This means that, no matter where your digital assets are currently stored, you’ll need to ensure that the existence of cryptoassets is mentioned in your will.
There’s an important caveat here: you should not provide specific details about private keys or where coins are held in this document because it becomes a matter of public record — meaning it’s possible that unauthorized people could access it.
Instead, you’ll want to securely store detailed instructions for your loved ones to follow, along with meticulous records about your investments. It’s a good idea to get into the habit of updating this on a regular basis, especially if you’re an active investor. The information you’ll want to mention in a password-protected environment or safe space include:
- Where your crypto assets are held, and any helpful account specifics
- How much they’re worth (of course, this may be prone to change)
- Login details for any smartphones or devices where wallets are held
- Double-checked records of private keys and seed phrases
Of course, this is all incredibly delicate information that could be abused if it falls into the wrong hands. Because of this, you should perform in-depth research to find reputable password managers and digital safe providers. And while it may be tempting to write all of this down with pen and paper, you need a contingency plan if this document is damaged or lost.
How to Pass On Your Crypto to Loved Ones
Given how the crypto space has grown into a multitrillion-dollar industry, law firms and startups are beginning to offer specialized support to investors with exposure to digital assets. And when it comes to ensuring that your wishes are honored, you should seek out a tech-savvy individual who has experience of transacting safely using crypto wallets.
Digital Executor
One potential option is to appoint a digital executor who will be specifically tasked with handling your crypto holdings — separate to any other assets in your estate. From here, it’s time to reflect on your wishes, and consider how your coins, tokens and NFTs should be dealt with.
There are many questions worth asking yourself. Would you want your Bitcoin or Ether to be liquidated after your death, or left untouched should they appreciate in value? And if you have children, do you want these coins held in a trust that can be accessed when they reach a certain age? You might also have digital assets of sentimental value — such as pieces of digital art.
Digital executors should have crystal-clear instructions setting out your needs and wants in detail, along with all the documentation they’ll need to fulfill your wishes. One option worth considering is leaving these details entrusted with your solicitor — and as this article cannot give you legal advice, it’s worth consulting with a professional.
Sharding Private Keys
One cutting-edge option that some investors are exploring involves sharding private keys — effectively breaking them up into smaller pieces and distributing them among several people. This could include a lawyer, your partner, your children or your digital asset executor. If a key is split into five chunks, you could order that three signatures are needed to unlock access to funds — eliminating a single point of failure, and preventing one malicious actor from taking advantage of the trust you’ve placed in them. 
Don’t forget about tax
Last but not least, don’t forget that bestowing cryptocurrencies to loved ones in your will may end up being a taxable event in your jurisdiction.
A good example of this can be found in the United Kingdom, where HMRC has confirmed that inheritance tax does apply to digital assets.
At the time of writing, Britons are given a tax-free threshold of £325,000 for their estate, meaning anything above that will be subject to a tax of 40%.
There are subtle workarounds here — including the seven-year rule, which means that any gifts given more than seven years before your death are exempt from inheritance tax.
Right: we’ve covered a lot of ground here. Take a deep breath. Thinking about your will can be overwhelming at the best of times, and crypto makes things even more complicated. Finding a law firm that specializes in digital assets can be essential if you have substantial holdings — and remember: your family will thank you one day.
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