Crypto is like everything else in one regard: You can’t take it with you when you die. But if your private keys follow you to the grave, you also can’t leave it behind. Indeed, an estimated $140 billion in Bitcoin—about one-fifth of the total supply—may be lost forever, according to analytics firm Chainalysis, and poor estate planning may be one reason for that.
“There’s really no getting it back—there’s no ‘forgot password,’” Nick Neuman, cofounder and CEO of multisig wallet Casa, told Fortune.
In the legacy financial system, the deceased’s leftover funds can be recovered from a bank or asset manager, but passing on crypto is more complex, owing to questions of self-custody. Unlike fiat currencies, crypto and non-fungible assets can be stored in a host of places: hardware “cold” wallets, online “hot” wallets, or on centralized, regulated exchanges such as Coinbase or Binance.
At a time when surveys suggest many people are buying crypto to pass on to their kids, how should they bequeath their assets to the next generation of HODLers?
Start with the will
Crypto beneficiaries, exactly like those receiving traditional money or real estate, must be identified in your will, and if you wish to nominate a guardian to access any private keys, but not inherit the assets, this also must be declared.
However, if you’re planning on assigning your attorney the role of trustee, think again: Attorneys can’t legally be custodians of digital assets. For an attorney to take custody of a client’s tokens or NFTs, this would require them to have both a money transmitter license and a BitLicense, digital assets lawyer Max Dilendorf told Fortune.
“This is impossible,” he says, and regulators haven’t yet addressed the issue. “It’s a huge gap.”
If you’re particularly concerned about hackers knowing your heirs will be receiving crypto, stating this in your will isn’t mandatory, probate lawyer Anthony Park explained to Fortune.
“That document will become a public record when it’s probated, and I personally foresee a future where the scammers will be scanning the court files to see any mention of crypto,” he says. Instead, simply list what percentage of your estate goes to whomever rather than itemizing specific assets.
And because documents tied to estates are rarely updated, listing specific tokens creates the risk of “creating all sorts of paradoxes and problems with your estate plan,” Park adds. “Let’s say I leave my Enron stock to my daughter … It doesn’t exist anymore.”
Keep good records—and share what you can
If your crypto is stored in a wallet, educate your family on what it is and how it works. Such instructions can be formally written down in your will or shared with your attorney.
However, Park notes, if your crypto remains with an exchange, “there’s not much unique about what you need to do, because it’ll be treated like any other bank or brokerage.”
To make things easier for beneficiaries, you can register them as a second account holder, says Dilendorf. But if you’d rather not run the risk of joint custody once you’re no longer living, the estate can still recover the funds through probate proceedings. For this, your beneficiary must provide a death certificate, probate documents, and self-identification.
Sharing seed phrases is much more complicated, experts told Fortune. The harder you make it to access your crypto wallet while alive, the harder it is to access after death. Doing so requires a “tricky balance between security and recoverability,” says Casa’s Neuman.
Park recommends such keys never be stored online—or done so only with additional guardrails in place—and the easiest solution may be one of the oldest: Write the password on a piece of paper, and store it in a safe or an insured bank vault. Some crypto holders may even want the key engraved into metal to help ensure its longevity.
Additional options
For more advanced alternatives, consider using an encrypted email service to send key information to beneficiaries upon your death. Additionally, there are methods of social recovery via custodial services—both on- and off-chain—that involve multiple heirs collectively requesting the info and presenting documentation of death.
Park says a multisig cold wallet remains the gold standard. In addition to your own key, at least three additional unique keys are generated to secure one pool of assets, and any two of them are needed for entry. Park recommends leaving one to an heir, one to the wallet provider, and one to your attorney. In the case of Neuman’s multisig Casa, not only does that “remove a single point of failure” it can automatically share the keys with recipients in an encrypted form upon your demise.
Otherwise, it can be difficult for some beneficiaries to find what’s left behind. Written instructions aren’t always sufficient, Park noted.
“Those rarely work out well,” he added. “Most people don’t keep them up to date. So, it’s pointless … Just give them the name of the company where you have set up your multisig.”
If you lack a multi-signature wallet, Park said, you can get by with a “poor man’s version,” where you add a pass-phrase to your wallet, similar to adding a second password onto your seed phrase. Give your attorney the pass-phrase and your heir the seed phrase. If the latter misplaces the seed phrase or loses it to a hacker, it’s useless without the pass-phrase
“The whole point,” said Park, “is to split responsibility.”
