The crypto inheritance problem

In the US, cryptocurrency is treated as a digital asset under probate law, not money. This puts it in an awkward legal position for inheritance.

Why crypto is different from money

With money and physical assets, you can sign a beneficiary form or write a will. With digital assets, the law assumes you don't want private materials given to others unless you explicitly say so.

Two paths for crypto transfer

Your options depend on one big division: whether your crypto is held by a custodian or in a noncustodial wallet. Each has different rules for passing it on.

What custodial wallets are

A custodian is a third party like a bank or cryptocurrency marketplace that holds and manages your assets for you. Transferring after death is typically much easier with a custodian.

Banks make inheritance simple

Charles Schwab and Chase offer crypto services with beneficiary processes. Signing a beneficiary form for a brokerage account applies to crypto within it. One and done.

The custodian advantage

Banks, government, and credit reporting bureaus all know you have an account. Avenues exist for finding banked money of deceased people. With noncustodial wallets, this is not the case.

Crypto marketplaces lack beneficiary forms

Coinbase and PayPal have no beneficiary forms as of this writing. Both require legal documents proving you are the executor or entitled heir, plus a death certificate. The process is clunky but straightforward.

The noncustodial wallet problem

If you lose your cryptographic key while alive, it is game over. Benjamin Orzeske, chief counsel for Uniform Law Commission, says: if you lose your cryptographic key, there is no company you can appeal to.

“If you lose your cryptographic key, there's no company that you can appeal to.”

The secrecy problem

No government or credit reporting bureau has a record of noncustodial accounts. The only people who know are the ones you tell. Your fiduciary must know the crypto exists.

How to secure noncustodial inheritance

Put bulk instructions in your estate plan with your named fiduciary, but omit passwords. Store passwords in a safe-deposit box at a bank, listing the box in your will. Never put passwords in your will.

“The will is a public document.”

The testing problem

You cannot do a dry run to make sure your system works unless you trust your fiduciary completely.Something as simple as needing your fingerprint to unlock a device could spell the end of your plan.