What Happens to Your Crypto When You Die?

The Core Problem: Crypto Doesn’t Work Like Bank Accounts

When you die with traditional assets, there’s a system:

Traditional Finance Death Process:

1. Bank gets death certificate → freezes account
2. Executor is appointed → presents legal documents
3. Bank releases funds → to estate
4. Estate distributes → according to will/law

Timeline: 3-12 months
Success rate: 99%+
Requirements: Death certificate, court documents

Cryptocurrency Death Process:

1. You die
2. Nobody can access your wallet
3. The end

Timeline: Never
Success rate: 0% (without proper planning)
Requirements: Private keys/seed phrase that nobody has

Why Crypto Is Different:

The fundamental issue: Cryptocurrency is designed to be controlled solely by whoever has the private keys. This is a feature (nobody can freeze or seize your assets), but it becomes a catastrophic bug when you die.

Your Bitcoin doesn’t care that you died. The blockchain doesn’t recognize death certificates. Without keys, your heirs have ZERO legal recourse.

Where Your Crypto Could Be – And What Happens To Each

Scenario 1: Centralized Exchange (Coinbase, Kraken, Binance)

What Happens When You Die:

Best case scenario: Your executor can potentially recover funds.

Process:

1. Executor contacts exchange support
2. Provides death certificate + court documents appointing them
3. Proves they’re the legal heir/executor
4. Exchange may release funds to estate (at their discretion)

Timeline: 3-12 months
Success rate: 60-80% (if you have account info)
Challenges:

• Executor needs to know which exchange you used
• Needs your email address and account details
• May need to bypass 2FA (difficult)
• Exchange might be in a foreign jurisdiction
• Exchange might have gone bankrupt (FTX scenario)

Real Example – Coinbase Recovery:

In 2022, a widow successfully recovered her husband’s $40,000 from Coinbase. Process took 8 months and required:

• Death certificate (certified copy)
• Marriage certificate
• Letters testamentary (court document proving she was executor)
• Multiple emails and phone calls to Coinbase legal team
• Notarized affidavits

She got the money, but it was bureaucratic hell.

See my comparison of exchanges and their estate policies

Scenario 2: Hardware Wallet (Ledger, Trezor)

What Happens When You Die:

If heirs have seed phrase: Full access in minutes
If heirs DON’T have seed phrase: Money is gone forever

There is no backdoor. There is no customer service. There is no “forgot my password” option.

Common situations:

The hard truth: Hardware wallets are the MOST secure way to store crypto, but also the MOST dangerous for inheritance if not planned properly.

Full guide on hardware wallet security and backup

Scenario 3: Software Wallet (MetaMask, Trust Wallet)

What Happens When You Die:

Same as hardware wallets – seed phrase or nothing.

Additional complexity: Software wallets are usually on your phone/computer, which might be password-protected or encrypted.

Challenges:

• Phone password/biometric lock
• Wallet app might have separate PIN
• Seed phrase might be backed up to encrypted cloud
• Multiple wallets on different devices

Even if your family can access your phone, they might not know:

• Which app contains the crypto
• The wallet PIN
• How to use the wallet

Scenario 4: DeFi Protocols and Smart Contracts

What Happens When You Die:

If you have crypto locked in DeFi protocols (lending, staking, liquidity pools):

Access requirements:

• Private key to the connected wallet
• Knowledge of WHICH protocols you used
• Understanding of how to interact with smart contracts
• Enough ETH for gas fees to withdraw

Example scenario:

You have $50,000 staked on Aave. Your wife finds your seed phrase. She now needs to:

1. Know that you used Aave (not mentioned anywhere)
2. Navigate to aave.com
3. Connect the wallet
4. Find the “withdraw” function
5. Execute the transaction (pay gas fees)
6. Not accidentally approve a malicious contract and lose everything

For someone unfamiliar with DeFi? Nearly impossible without expert help.

Scenario 5: NFTs and Other Digital Assets

What Happens When You Die:

Same access requirements as any other crypto, with additional complexity:

• Valuation difficulty: How much is your Bored Ape worth? Market changes daily
• Storage location: NFTs might be on different chains (Ethereum, Solana, Polygon)
• Marketplace knowledge: Heirs need to know how to list/sell on OpenSea, Blur, etc.
• Royalty structures: Some NFTs have ongoing royalty payments

I know a case where someone died with $200K in NFTs. His brother had the seed phrase, but didn’t know:

• What NFTs were
• How to see them
• How to value them
• How to sell them

By the time he figured it out (6 months later), market crashed. NFTs sold for $30K total.

The Legal Complications Nobody Talks About

Problem 1: Crypto Doesn’t Appear in Probate

Probate is the legal process of distributing your assets after death.

Traditional assets: Automatically discovered

• Banks report accounts to estate
• Property records show real estate
• Brokerage accounts contact next of kin

Cryptocurrency: Invisible to probate process

• No institution to contact estate
• No central registry
• Family might not even know it exists

Result: Your $500K Bitcoin could sit unclaimed forever because nobody knows it exists.

Problem 2: Tax Implications Are Murky

When crypto is inherited:

Federal estate tax:

• Crypto is included in taxable estate
• Valued at fair market value on date of death
• Estate tax applies if estate > $13.61M (2025)

Step-up in basis:

• Heirs receive crypto with cost basis = value at death
• Example: You bought BTC at $10K, died when it was $80K → heir’s cost basis is $80K
• If heir sells at $90K, only $10K is capital gains

The problem:

How do you prove the value at date of death when:

• Crypto price varies by exchange?
• Which exchange’s price counts?
• What about DeFi tokens with no centralized pricing?
• What if the wallet was only discovered months/years later?

IRS guidance on this is minimal. Tax attorneys are making it up as they go.

See my guide on crypto taxes for more on cost basis

Problem 3: Multi-Signature Wallets and Business Entities

If your crypto is in a multi-sig wallet (requires 2-of-3 keys to move funds):

Scenario:

• You hold 1 key
• Business partner holds 1 key
• Company holds 1 key

You die:

• Your key might be lost
• Partner + Company can still move funds (2-of-3)
• But is that legal? Who owns the crypto?
• What if your estate wants access?

This gets legally complex fast, especially if there’s no operating agreement that addresses crypto.

Problem 4: International Jurisdiction Nightmares

You live in California. Your crypto is on:

• Binance (Cayman Islands)
• Hardware wallet (technically nowhere)
• DeFi protocol (smart contract on Ethereum, which is decentralized)

Questions with no clear answers:

• Which country’s laws apply?
• Can a US court compel a Cayman Islands exchange to release funds?
• Do you need separate probate in multiple jurisdictions?
• What if the exchange is hostile to US requests?

I’ve seen estates spend $50K in legal fees fighting international exchanges, only to recover $30K in crypto. Not worth it.

The 5-Step Crypto Inheritance Plan

Step 1: Create a Comprehensive Crypto Inventory

Your heirs can’t inherit what they don’t know exists.

Document Everything:

Sample Crypto Inventory Document:

CRITICAL: This inventory should NOT contain:

• Actual passwords
• Actual seed phrases
• Private keys
• 2FA backup codes

This document tells heirs WHAT exists and WHERE to find access information. The actual access information is stored separately.

Step 2: Secure Your Seed Phrases Properly

Your seed phrase is your Bitcoin. Lose it = lose Bitcoin. Let someone steal it = they steal Bitcoin.

Bad Storage Methods (DO NOT USE):

Good Storage Methods:

Method 1: Physical + Safety Deposit Box

1. Write seed phrase on paper/metal (fire-resistant)
2. Store original in bank safety deposit box
3. Store copy in fireproof home safe
4. Tell executor where both are located

Pros: Offline, secure from hacking
Cons: Bank failure, natural disaster could destroy one copy

Method 2: Split Seed Phrase (Advanced)

1. Use Shamir’s Secret Sharing to split seed into 3 parts
2. Require any 2-of-3 parts to reconstruct
3. Give part 1 to spouse
4. Give part 2 to trusted family member
5. Store part 3 in safety deposit box

Pros: No single person has full access
Cons: Complex, if 2 parts are lost you’re screwed

Method 3: Encrypted + Multiple Backups

1. Encrypt seed phrase with strong password
2. Store encrypted file in multiple locations
3. Store decryption password separately

Pros: Can backup digitally without risk
Cons: Forget encryption password = lost forever

My Personal System:

Step 3: Choose and Prepare Your Executor

Your executor needs to be:

Essential Qualities:

• Trustworthy: They’ll have access to everything
• Tech-literate: Understands basic computers/security
• Financially responsible: Won’t panic sell or YOLO into shitcoins
• Willing: Actually wants this responsibility
• Younger than you: Ideally will outlive you

What Your Executor Needs to Know:

The “Crypto Inheritance Practice Run”:

Do this while you’re alive:

1. Create a test wallet with $100
2. Give executor the seed phrase
3. Have them recover the wallet on their device
4. Have them send you the $100 back

This confirms they:

• Understand the process
• Can execute it properly
• Won’t accidentally lose funds

If they can’t do this simple test, they’re not ready to be your crypto executor.

Step 4: Formalize It Legally

Your crypto inheritance plan needs to be legally binding.

Option 1: Include Crypto in Your Will

Sample Will Language (consult attorney):

Pros:

• Legally binding
• Part of overall estate plan
• Clear beneficiary designation

Cons:

• Wills become public record (everyone can see you had crypto)
• Goes through probate (slow, expensive)
• Can’t include actual access info in the will itself

Option 2: Revocable Living Trust

How it works:

1. Create trust and transfer crypto ownership to trust
2. You remain trustee during lifetime (full control)
3. Designate successor trustee for after death
4. Trust document specifies crypto distribution

Pros:

• Avoids probate (faster, private)
• Doesn’t become public record
• More flexible than will
• Can include detailed crypto instructions

Cons:

• More expensive to set up ($1,500-$3,000)
• Requires transferring ownership to trust
• May be complex for crypto held on exchanges

Option 3: Crypto-Specific Services

Services like Casa, Unchained Capital offer:

• Multi-signature wallet setup
• Built-in inheritance plans
• Time-locked recovery options
• Professional executor services

How they work:

1. You set up 3-key multi-sig wallet
2. You hold 2 keys
3. Service holds 1 key in trust
4. After your death (verified), service releases their key to heirs

Pros:

• Designed specifically for crypto
• Professional handling
• No need to share seed phrases

Cons:

Common Inheritance Scams (Protect Your Family)

When someone dies with crypto, scammers appear like vultures.

Scam 1: Fake “Recovery Services”

How it works:

1. Family posts online: “Need help recovering deceased relative’s Bitcoin”
2. Scammer contacts them: “I can recover it for 50% fee”
3. Asks for seed phrase or private keys “to attempt recovery”
4. Steals everything

Red flags:

• Asks for seed phrase upfront
• Guarantees recovery
• Wants payment before showing results
• No verifiable credentials
• Pressures for quick action

Legitimate services:

• Work on contingency (only paid if successful)
• Have verifiable track record
• Explain process transparently
• May offer to have you control keys while they guide

Scam 2: Phishing Executor’s Email

How it works:

1. Scammer monitors obituaries
2. Finds deceased person’s online presence
3. Sends executor email: “Complete your Coinbase inheritance claim”
4. Links to fake Coinbase site
5. Executor enters credentials, 2FA
6. Account drained

Protection:

• Never click links in unexpected emails
• Type exchange URL manually
• Call exchange support directly (number from official website)
• Verify any inheritance process through official channels

Scam 3: Impersonating Exchange Support

How it works:

1. Executor contacts exchange: “I need to access deceased account”
2. Scammer sees this on social media/forums
3. Calls executor: “This is Coinbase legal department…”
4. Requests account details “for verification”
5. Uses info to hijack account

Protection:

• Exchange will NEVER call you
• Always initiate contact yourself
• Use official support channels only
• Verify identity of any caller

See my full guide on spotting crypto scams – applies 10x more when dealing with inheritance

Real Case Studies: Successes and Failures

Success Story 1: The Prepared Bitcoin Holder

Success Story 2: The Exchange Account Recovery

Failure Story 1: The Lost Hardware Wallet

Failure Story 2: The DeFi Protocol Complexity

Failure Story 3: The Forgotten Exchange

FAQ: Your Inheritance Questions Answered

The Bottom Line: Do This Today

You don’t need a perfect plan. You need any plan.

Even a basic plan (inventory + seed phrase location + trusted person) is infinitely better than nothing.

Minimum Viable Inheritance Plan (Do This Weekend):

Total time investment: 6 hours
Cost: $0-300 (if consulting attorney)
Potential savings for heirs: Hundreds of thousands to millions

The Full Plan (Do This Month):

Don’t wait until you’re sick or old. My friend was 34 and healthy when he died. Nobody expects sudden death.

Your crypto is worthless if your family can’t access it.

Get started with the right wallet setup and secure storage solutions