What happens to cryptocurrency when someone dies?

Legal Recognition of Digital Assets

1. Cryptocurrencies are classified as property in multiple jurisdictions including the United States, the United Kingdom, and Singapore. Courts have ruled that private keys constitute control over assets, granting them legal standing equivalent to tangible property.

2. In Germany, Bitcoin is treated as “private money” under tax law, meaning inheritance rules apply directly to wallet balances held at the time of death.

3. Japan’s amended Civil Code explicitly includes crypto holdings within the scope of inheritable assets, requiring executors to inventory digital wallets alongside bank accounts and real estate.

4. Australia’s ATO mandates that deceased estates report cryptocurrency transactions during probate, with capital gains tax liabilities calculated up to the date of death.

Access Barriers for Executors

1. Without access to seed phrases or hardware wallet recovery keys, heirs cannot initiate transfers—even with court orders or certified death certificates.

2. Centralized exchange accounts often freeze upon notification of death, demanding notarized documentation before releasing funds, which may take months to process.

3. Multi-signature wallets require coordination among surviving signers; if one private key is lost or held by the deceased, the entire fund becomes irretrievable.

4. Cloud-stored wallet backups encrypted with biometric or password-only authentication present near-total inaccessibility if credentials were not documented externally.

Estate Planning Tools in Practice

1. Shamir’s Secret Sharing schemes allow splitting a seed phrase into N parts, requiring M-of-N shares to reconstruct—enabling distribution across trusted parties without full exposure.

2. Dead man’s switches trigger automated wallet transfers after inactivity detection, using third-party services like Dead Man’s Switch or custom smart contracts on Ethereum.

3. Testamentary trusts specify custodial arrangements for crypto holdings, appointing licensed digital asset trustees authorized to manage keys and execute instructions per trust terms.

4. Notarized “crypto wills” list wallet addresses, derivation paths, and access protocols, stored with attorneys or in secure physical vaults accessible only upon verified probate initiation.

Tax Implications Across Jurisdictions

1. The IRS treats inherited cryptocurrency as received at fair market value on the date of death, establishing a new cost basis for future sales—eliminating prior unrealized gains.

2. In France, heirs pay progressive inheritance tax ranging from 5% to 45%, applied to the valuation determined by blockchain analytics firms tracking wallet balances pre-death.

3. Canada applies deemed disposition rules: the deceased is taxed on capital gains up to death, while beneficiaries receive adjusted cost base aligned with market price at that moment.

4. Switzerland exempts inheritance tax for spouses and direct descendants in most cantons, though crypto must be declared to cantonal tax authorities alongside traditional assets.

Frequently Asked Questions

Q: Can a court compel an exchange to release crypto without a seed phrase?A: No. Exchanges lack technical ability to restore access without user credentials. Courts may order account closure and fund disbursement only if login details are provided or verified through legacy authentication methods.

Q: Is storing a seed phrase in a safe deposit box legally sufficient for inheritance?A: Not always. Many banks prohibit access to safe deposit boxes post-mortem until probate concludes, potentially delaying retrieval for weeks or months—during which market conditions may shift drastically.

Q: Do smart contract-based inheritance mechanisms bypass probate?A: They can reduce reliance on courts but do not eliminate jurisdictional requirements. Some countries mandate disclosure of automated transfers to tax authorities, and beneficiaries may still need legal validation to claim assets from exchanges holding counterparties.

Q: What happens if a hardware wallet is damaged and no backup exists?A: The associated funds are permanently inaccessible. Blockchain immutability ensures no entity—including developers, miners, or regulators—can recover or reverse transactions tied to unrecoverable keys.