Protecting Your Family: Inheritance and Incapacity

9.1 The locked box

Hash shared a story told by an estate lawyer. A client had passed away suddenly, leaving a family who knew there was "some bitcoin somewhere." They found a hardware wallet in a drawer, but no PIN, no seed phrase, and no notes. The funds were almost certainly still on the blockchain. They were also almost certainly lost forever.

"In traditional finance, a family can contact the bank with a death certificate," said Hash. "With self-custodied crypto, there's no bank to call. If you don't plan, the blockchain will keep your coins safe from everyone, including your family."

Module 2, Chapters 4 and 13 introduced inheritance from a security perspective. This chapter looks at the full picture: legal, practical, and family.

9.2 Two scenarios to plan for

Scenario	Challenge
Death	Heirs must find, access, and legally receive your crypto
Incapacity, through illness or accident	Someone may need to manage your finances while you're alive but unable to

Both need planning, and they need different documents.

9.3 The legal side

Document	Purpose
Will	States who inherits your assets, including crypto
Executor	The person responsible for carrying out the will; should be capable of handling crypto or able to get help
Power of attorney or equivalent	Lets a trusted person act for you if you're incapacitated; check it covers digital assets
Trusts or other structures	In some countries, used for larger or more complex estates

Laws differ by country. Many estate lawyers now have experience with digital assets. A professional can help make sure your crypto is legally covered.

Important: don't put seed phrases or private keys directly in a will. In some places, wills can become accessible to others during the legal process.

9.4 The practical side

The legal side says who should inherit. The practical side makes sure they actually can.

Holding type	What heirs need
Exchange accounts	Knowledge of the account, and the exchange's estate process; exchanges typically require legal documents
Spot ETFs or brokerage accounts	Handled like other investment accounts
Self-custodied wallets	Location of devices and backups, and the ability to use them safely
Multisig wallets	Enough keys and the wallet configuration (Module 2, Chapter 13)
DeFi positions	Knowledge of positions and how to unwind them before liquidations or losses

9.5 The letter of instruction

A letter of instruction, kept separately from your seed phrases, can guide your family without exposing your keys.

Include	Don't include
That you hold crypto, roughly how much, and where	Seed phrases or private keys
Exchanges and platforms you use	Passwords in plain text
Wallet types and where devices and backups are stored	Anything that lets a stranger who finds the letter take the funds
Who to contact for help: a trusted technical person or professional
Warnings about scams targeting grieving families (Module 2, Chapter 11)
Simple, step-by-step instructions written for a non-expert

Keep it with your will or other important documents, and tell your executor or a trusted person where it is.

9.6 Structured solutions

Approach	How it works	Trade-off
Two backup locations, one with a trusted person	Heirs can access a backup	The trusted person must be reliable; secure storage is essential
Multisig with a family member or professional as one key holder (Module 2, Chapter 13)	No single person can move funds alone; heirs can combine keys	Requires setup and clear instructions
Professional inheritance or custody services	A specialised service holds a key or follows agreed procedures	Fees and trust in the provider
Time-based recovery in smart accounts (Module 2, Chapter 13)	A recovery address gains access after long inactivity	Newer technology; setup must be correct
Keeping larger amounts in regulated custody or ETFs	Inheritance follows familiar legal processes	Gives up some benefits of self-custody

"So I'm balancing security against my family's ability to access it," said Mint.

"That's exactly the balance," said Hash. "Perfect security that nobody can ever access helps no one."

9.7 Talk to your family

Even the best documents fail if nobody knows they exist or understands crypto at all. Consider:

1. Telling at least one trusted person that you hold crypto and where your instructions are.
2. Explaining basic concepts, like what a seed phrase is and why they should never share it.
3. Warning them about recovery scams (Module 2, Chapter 11). Scammers sometimes target families after deaths.
4. Reviewing the plan when your holdings or family situation change.

9.8 Tax considerations

Inheritance tax and the tax basis of inherited crypto vary by country (Module 14). In the United States, for example, inherited assets generally receive a stepped-up basis (Module 14, Chapter 5). Your estate planner can explain the rules where you live.

9.9 Try it yourself

Draft a letter of instruction using the table in section 9.5, without including any seed phrases or passwords. Decide who your trusted person will be, and where the letter will be kept. If you don't have a will, or your will doesn't mention digital assets, schedule time to address that with a professional.

Key takeaways from this chapter

1. Self-custodied crypto can be permanently lost to your family if you don't plan.
2. Plan for both death and incapacity; they need different legal documents.
3. Use a will, a capable executor, and a power of attorney that covers digital assets; never put seed phrases in a will.
4. A separate letter of instruction tells heirs what you hold and how to access it, without exposing keys.
5. Structured solutions include split backups, multisig, professional services, time-based recovery, and regulated custody.
6. Talk to your family, explain basics, and warn them about recovery scams.
7. Inheritance taxes and inherited cost basis vary by country; get local advice.