How to protect encrypted assets and transfer them to heirs after death

Cryptographic assets are inherently decentralized, so after the asset owner passes away, the transfer of crypto assets will face some unique challenges.

You need to carefully consider how your crypto assets can be found, identified, and accessed after your death, so that your loved ones can benefit.

Today, there are many solutions to choose from, including handwritten mnemonics, encrypted private keys, and dead man’s switches(dead man’s switch).

What happens to your crypto assets after you pass away?

As the popularity of cryptocurrencies continues to grow, it becomes increasingly important to consider what will happen to your crypto assets after your death.

Estate planning is a common practice throughout history to ensure your traditional assets are distributed according to your wishes. However, for crypto assets, this approach faces some unique challenges.

Because there are many software, hardware, and trading platforms that can hold crypto assets, the first obstacle to overcome after the owner’s death is how to find and identify these assets.

If you cannot access wallets and accounts due to lack of information related to private keys, mnemonics, or passwords, then it is almost impossible to locate and access these assets. This means your crypto assets, such as Bitcoin, Ethereum, or other altcoins, could be lost forever.

You can plan ahead for your crypto assets or recover the deceased’s assets as a beneficiary through the following methods.

How to leave crypto assets as inheritance after death

If you want to leave crypto assets to others after death, it’s best to plan early. There are many ways to do this, but the most common solutions include the following.

Low-tech physical solutions handwritten notes

The simplest method is to write down your private keys and mnemonics, store them in a safe deposit box, and include instructions on how to access your assets after your death. This method is straightforward but requires weighing risks, as this information could be stolen, lost, or destroyed before or after your death.

To enhance security, these details can be stored in a bank’s secure vault, which offers insurance coverage and has established procedures allowing your beneficiaries or executors to gain access after your passing.

USB or external hard drive

Another option is to store private keys and mnemonics on a USB drive or external hard disk, protected with a password to prevent theft. The biggest risk is that the USB or hard drive could be damaged or destroyed, making the information inaccessible. If this is your preferred method, it’s advisable to prepare multiple backups.

If you set a password for the files inside, you also need to store the password somewhere safe, either handwritten and kept securely or using an online password manager.

However, these options carry risks of theft and hacking, so crypto asset holders should ensure their beneficiaries understand how to recover assets through these means.

Advanced solutions encrypted email

You can share private keys and mnemonics via encrypted email with trusted recipients, along with instructions on how to access assets after death. But the reliability of this method largely depends on whether the trusted person will follow these instructions during your lifetime without compromising the security of the encrypted email.

There are also third-party hosting services that can be used to access encrypted emails, which may require a password. However, if the third-party service ceases to exist, this information is lost.

Disability switch

You can set up a disability switch that periodically verifies your status. If you fail to verify that you are still alive, it will release your private keys to a designated recipient.

This verification is simple, similar to sending or receiving an email or performing a quick task, and can be scheduled weekly, monthly, or at other intervals. If you fail to verify within a certain period, the switch activates, and the private key information is automatically released to your designated recipient.

But there is an important caveat: you might be unable to verify that you are “still alive” due to reasons other than death, such as illness or loss of internet connection. Additionally, the designated recipient of the access information may not be the final beneficiary, which introduces potential risks. Moreover, legal restrictions may prevent such asset transfers in your jurisdiction.

If you decide to implement a disability switch in your estate plan, be sure to consult experts to understand how to execute it safely and ensure smooth transfer of assets to beneficiaries.

Social recovery via data hosting services

You can also use social recovery through data hosting services, which involve appointing multiple guardians who will gather after the asset holder’s death to reconstruct the deceased’s access information.

Providers typically require proper documentation to verify death. Some services are hosted on traditional websites, while others are on-chain, with additional security layers.

When using such services, it’s crucial to carefully select suitable guardians and set appropriate terms. Also, if the hosting service allows most guardians to reconstruct the private key without verifying the account holder’s death, be very cautious.

It’s equally important to clarify whether the nominated guardians can only receive access information or also benefit from the remaining crypto assets.

Ethereum smart contract wallets and inheritance wallets

Ethereum smart contract wallets that support multiple signers are a good choice for social recovery. Crypto asset holders can create a multi-signature inheritance wallet, adding themselves and beneficiaries as wallet owners. With this method, most signers must verify any transaction, even if the owner is still alive.

After the owner’s death, co-owners and one or more representatives of the deceased can access the wallet and transfer access rights from the deceased to the designated beneficiaries.

Another approach is to create an inheritance wallet where assets are transferred into the wallet and stored in a secure physical vault during the owner’s lifetime. Before death, third parties cannot access the wallet. After the owner’s death, a personal representative must provide proof of death and a court order showing they have the authority to access the deceased’s assets before gaining access. These physical vaults often offer insurance coverage.

How to include crypto assets in a will

Nominating someone to access your crypto assets does not automatically designate them as beneficiaries. It’s crucial to incorporate any crypto asset planning into your overall estate plan.

Laws in each jurisdiction govern how property is transferred after death, usually through a will. Since most jurisdictions do not recognize electronic wills and only accept handwritten paper wills, it’s essential to ensure all will provisions related to crypto assets are legally valid.

You can specify in your will how private keys should be transferred to recipients after your death or clarify who should benefit from the assets if beneficiaries differ from guardians or nominees.

What happens to crypto assets on trading platforms after death

Centralized crypto exchanges typically assist relevant parties in locating and accessing crypto assets after the account holder’s death.

If the deceased had installed the exchange’s app on a smartphone or laptop and the account was set to auto-login after registration, identifying the assets held by the deceased might be easier.

However, anyone handling the estate should proceed with caution when accessing such accounts. For example, under the UK Computer Misuse Act 1990, accessing someone else’s account could be a criminal offense. Each platform’s terms of service also contain rules regarding password disclosure and granting third-party access.

To avoid unknowingly violating laws, executors should contact the exchange, notify them of the death, and provide all relevant information and documentation. Most platforms specify the proper procedures in their terms of service. This usually requires a death certificate, such as a death certificate and proof that they are authorized to handle the deceased’s crypto assets. For example, the executor can provide a copy of the will or court order.

How beneficiaries can access private keys

If you store crypto in a self-custody wallet, such as a hardware wallet or paper wallet, you must create a plan that allows trusted individuals to access your private keys after your death.

Generally, even if no plan is in place, there are ways to recover these assets. You might find a file containing the private key on their mobile device or a note with mnemonics in their safe or notebook. But if the deceased took additional measures to protect the private key, such as encrypting it or setting a password, finding the private key becomes more difficult. This also means the digital assets of the deceased could be lost forever.

Can you pass on your mining progress or DAO roles after death?

Some also ask whether a player’s progress in earning games or their roles in a DAO can continue after they pass away, and if so, who should operate them. There is also debate about who benefits from NFT or unminted artwork royalties, and what happens if the deceased was involved in mining, crypto airdrops, or DAOs.

All these issues can be clarified through a will or a letter of wishes, but all potential problems and real-world situations should be carefully considered.

Conclusion

The key is to develop an inheritance plan so that relevant parties can locate, identify, and access your crypto assets after your death. It’s best to incorporate your crypto asset planning into your overall estate planning process. You must ensure your will is legally recognized and that the crypto assets comply with the regulations of your local jurisdiction.

Otherwise, your beneficiaries may have to go through complex legal procedures to claim the assets, or your crypto assets could be lost forever. $PEAQ $LNQ$AQT