How to Pass on Cryptocurrency After Death: Custodial and Non-Custodial Wallets

If someone wants to inherit your cryptocurrency, they may need more than a will to access it. Your heirs could be searching for digital assets that are difficult to locate and even harder to transfer. If you hold cryptocurrency, understand that without a clear plan, there is a high possibility those funds could disappear along with you.

In the United States, cryptocurrencies are considered digital assets rather than money for probate and estate law purposes. After acquiring money and physical assets, you can create an estate plan by signing beneficiary forms and writing a will that states who should receive your property when you die. Digital assets, however, can be more complicated. Unless the deceased explicitly said otherwise, the law may allow personal materials, from emails to photos, to be passed on to others. This places cryptocurrency in an awkward position as a digital asset.

Options for transferring cryptocurrency after death or incapacitation generally fall into one broad category: whether the assets are held by a custodian or stored in a non-custodial cryptocurrency wallet.

The Two Main Types of Cryptocurrency Wallets

A custodial wallet means that a third party, such as a bank or cryptocurrency exchange, holds and manages your assets on your behalf. Transferring assets after death is usually easier when an administrator or custodian is involved, especially when the assets are held by a bank.

Non-custodial wallets eliminate intermediaries and allow individuals to hold their cryptocurrency directly. For crypto enthusiasts who are drawn to digital currencies because of their dissatisfaction with the traditional banking system, using a non-custodial wallet may be especially important.

Non-custodial wallets can be software-based or hardware-based. They can even consist of a piece of paper containing instructions and a password for accessing the cryptocurrency. (I use “password” here and throughout to refer to the string of letters, numbers, and characters required to access someone’s cryptocurrency.) Regardless of the type of non-custodial wallet you choose, you will need a do-it-yourself solution for transferring the assets.

Advantages and Disadvantages of Custodial Cryptocurrency Wallets

If you use a third-party custodian to store your cryptocurrency, you can choose one that has a beneficiary process in place.

Charles Schwab and Chase are two examples of large, well-known financial institutions that offer cryptocurrency services and have experience transferring assets after death. For example, Schwab houses cryptocurrency services within its brokerage account. Signing a beneficiary form for a brokerage account also applies to virtual currency accounts, so one form may cover both.

Another advantage of using a bank is that at least three organizations may know you have an account: the bank, the government, and the credit reporting agency. There are ways to locate the bank deposits of a deceased person. With non-custodial wallets, that is not necessarily the case.