Inheriting crypto: what happens to Bitcoin when you die

Why crypto is different from everything else

With a bank account, there's always a way out. Forgotten the password? The bank verifies your identity and resets it. Got a certificate of inheritance? The bank transfers the balance to the heirs. There is an institution that carries liability, checks documents, and ultimately helps.

With self-custodied cryptocurrency, that institution doesn't exist. Bitcoin, Ethereum and most other cryptocurrencies are decentralised: nobody sits in a head office who can "unlock" an account. Access depends entirely on a cryptographic key. If nobody knows that key, the balance remains visible on the blockchain — forever, at its address — but is practically unreachable for eternity. Even a German certificate of inheritance changes nothing here, because it's addressed to authorities and companies, not to a server with no one behind the counter.

Seed phrases and hardware wallets, in one paragraph

Nearly every crypto wallet generates a seed phrase during setup: a sequence of usually twelve or twenty-four English words (something like "garden lucky fossil…") from which every private key in the wallet can be mathematically derived. Anyone who knows these words in the correct order can restore the entire wallet on any device and move the funds — no additional password or confirmation needed. A hardware wallet like a Ledger or Trezor is simply a small device that keeps the private key offline, disconnected from the internet, to shield it from online attacks. The security, then, doesn't live in the device itself but in the seed phrase that can replace it if it's lost or damaged. That's exactly what makes it so valuable — and so dangerous if it ends up in the wrong hands, or in no hands at all.

A second, often-told case shows the flip side of the same problem: programmer Stefan Thomas received about 7,002 bitcoin in 2011 as payment for an explainer video. The private keys sit encrypted on an old IronKey USB drive that permanently wipes its contents after ten incorrect password attempts. Thomas has lost the password — and has exactly two of ten attempts left. At today's prices, that's a sum in the hundreds of millions of dollars, reduced to two keystrokes. Both cases — QuadrigaCX and Stefan Thomas — are extreme, but they point to a real, structural problem: estimates from Chainalysis and other analytics firms suggest that roughly a fifth of all bitcoin ever mined is permanently unreachable, mostly because of lost keys rather than technical failure.

Exchange or self-custody: the difference that matters for heirs

One distinction matters more than any other for planning: does the balance sit with an exchange (custodial), or do you hold the keys yourself (self-custody)?

The difference is fundamental: with an exchange, you're essentially a customer of a company that is legally accountable and has an estate process, even if it's bureaucratic. With self-custody, you are your own data centre — with all the advantages of independence and control, but with no safety net for the emergency you didn't personally prepare for.

How to hand on a seed phrase safely

The challenge is paradoxical: the phrase must be protected well enough that nobody steals it while you're alive, yet accessible enough that the right person finds it when it matters. Four approaches have proven themselves in practice, often combined:

• Shamir Secret Sharing splits: the seed phrase is cryptographically broken into several parts, of which only a minimum number (say, three of five) together can restore the wallet. A single part alone is worthless. Some modern hardware wallets support this scheme natively.
• Physical steel backups: instead of paper, which burns or fades, many users engrave or stamp their words onto fire- and water-resistant metal plates. That protects against loss, not theft — so the backup still belongs somewhere secure.
• A safe deposit box plus separate instructions: the actual phrase sits in the box, while a trusted person receives written instructions on where to find it and what to do — without the instructions themselves containing the phrase.
• Multisig with a trusted co-signer: a wallet is set up so transactions only become valid with multiple independent signatures, for example two out of three. A trusted person can then take part in a decision when it matters, without being able to move funds alone while you're still alive.

Whichever route you choose, none of them replaces a conversation. Someone has to know that crypto assets exist at all, roughly how much, and where the pieces of the solution are kept. Otherwise even the best technical setup remains a secret that dies with you.

What you should never do

Three mistakes keep showing up in practice, and all three feel convenient in the moment:

• Writing the seed phrase into your will. A German will is held by the probate court and can be inspected by several parties during the inheritance process — including people who aren't meant to inherit anything. Putting the phrase there potentially exposes it long before anyone is legally allowed to use it.
• A photo of the seed phrase. Photos land automatically in cloud backups, get synced across devices, and are sometimes even scanned by image-recognition software. One compromised account is enough to lose the entire balance — while you're still alive.
• An email or a cloud note. Both are internet-connected and therefore attackable. Email accounts, in particular, are often the first target in account takeovers, precisely because they unlock so many other accounts.

Tax basics: what applies when you inherit crypto in Germany

For German inheritance tax purposes, cryptocurrency is simply an asset, much like securities or cash. It enters the estate at its market value on the date of death and is subject to the usual allowances and rates of inheritance tax. If heirs later sell the inherited coins, income tax can additionally apply: under § 23 of the German Income Tax Act, private disposals of cryptocurrency within one year of acquisition are taxable — and heirs inherit the deceased's original acquisition date, not the date of death. So if you inherit coins the deceased bought only three months earlier, that deadline is worth watching. The exact treatment depends heavily on the individual case, so a tax adviser is more useful here than a general rule from a guide.

Crypto is only one piece of a bigger picture. If you haven't yet worked through your digital estate as a whole — devices, accounts, contracts, power of attorney and a will — it's worth reading our complete guide to digital estate planning. It also includes the eight-step plan that your crypto arrangements should fit into.