Home | Blog | What Happens To Your Crypto When You Die?
Ray Alvarez
Reading time: 5 min
Date: 22nd Jun 2020

What Happens To Your Crypto When You Die?

It is never fun thinking about your own mortality. However, there is a good chance your cryptocurrency will outlast you and when that day arrives, you probably want to make sure your loved ones have access to the remaining amount of crypto you didn’t spend on Lambos.

Currently, there are several ways individuals have bequeathed their crypto to family and friends. This article is not to be taken as legal advice, you should consult a Wills and Estate Planning attorney in your local area for that. This article is mostly for discerning the problems with crypto inheritance and the prevailing opinions of the legal community.

Don’t Rely on Exchanges

For all the benefits that exchanges provide in regards to accessing cryptocurrency and trading, it isn’t the place you want to store your cryptocurrency long-term. No matter how safe an exchange may purport to be, the reality of the matter is that all exchanges are vulnerable to attacks. In addition, the lack of regulation and insurance means that when an exchange gets hacked, it is the users that often pay the price.

Secondly, from a custodial perspective, when it comes to exchanges, you don’t own the wallet in which your assets are stored. As the saying goes in the crypto community “your keys, your crypto”. Exchanges are for the most part, centralized platforms. As a user, by keeping your crypto on an exchange you are saying two things: 1) you are leaving your coins on an exchange to facilitate quick transactions so that you can quickly enter and exit positions, and 2) you are outsourcing the security of your assets, and in turn, the ownership of those assets to a third-party.

Thirdly, and probably the most relevant in terms of inheritance and estate planning, exchanges do not have the proper measures in place to name and facilitate transfers to beneficiaries within your account. Coinbase, for example, puts that burden on the family of the deceased:

“Typically, naming a beneficiary on your Coinbase account would be done with your estate planning attorney. Like most other assets, the ownership of your Coinbase account would be transferred according to your will or other arrangements made with your legal counsel. It’s not currently possible to name a beneficiary directly within your Coinbase account.”

In fairness, Coinbase is not alone in this regard. Most if not all exchanges do not have a method of naming a beneficiary within your account. Even popular stock trading applications do not let you name a beneficiary within the application. Due to the problems listed above, there are groups of people that have advocated for a solution in the form of a “Dead Man’s Switch”.

Dead Man’s Switch and Crypto Inheritance

The common definition for a Dead Man’s Switch is a failsafe that is triggered by the incapacitation of an operator. Usually, this was for the operation of equipment or machinery and would act as a safeguard in the event that says, for example, a train’s conductor fainted and was unable to safely stop the train. In the previous example, the train conductor would be holding on to a lever or pressing on a pedal that would disengage the train’s break.

In crypto, a Dead Man’s Switch is a method by which a user will provide a passphrase or access instructions to a third-party application. This can be classified as the “secret” within the application. If the user doesn’t engage with the application for a predetermined amount of time, then the application assumes the user is incapacitated and will send a message with the “secret” to the user’s intended recipient.

While this solution seems practical, most lawyers have stated that they do not feel comfortable putting their client’s money or relying on these blockchain applications that are still in their infancy.

What is the Solution?

The first and most obvious solution would be to speak about these issues to a licensed attorney in your area. Blockchain is becoming required reading for most lawyers nowadays and finding a lawyer that is familiar with these issues will be a lot easier in the near future than it has been in recent years.

Secondly, educate your loved ones on how to access your account or transfer funds from a wallet. Educating them on how to use and access cryptocurrency can go a long way.

Pamela Morgan, a lawyer, and author on Cryptoasset Estate Planning lays out a very helpful template for organizing and planning for the transfer of your crypto assets. Mostly, she emphasizes that passing on cryptocurrency to your heirs requires that intention to be stated in your will. In addition, you must make sure to follow the laws and guidelines regarding wills and estate planning in your area. If you have your cryptocurrency stored on different wallets and exchanges, you should consider creating a table or narrative that lays out the access information.

Example of an Access Control tableExample of an Access Control table

What we do know about cryptocurrency and inheritance is that those that store their cryptocurrency without a plan or contingency will usually end up losing it. The strongest protections against this are educating your loved ones and speaking with a licensed attorney that can help organize your assets in the event of your passing. While we wait for blockchain technology to offer more elegant solutions, we must rely on ourselves to plan ahead.


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