What happens to your bitcoin when you die
Self-custody means nobody can take your bitcoin, and nobody can hand it to your family unless you set that up.
If nobody else can reach your seed phrase, your self-custodied bitcoin is lost forever when you die. No company can reset it, and no court order can move it. Bitcoin held on an exchange goes through that exchange's estate claims process instead. To pass on bitcoin you hold yourself, leave your heirs a secure way to reach the keys and a written letter that tells them exactly what to do.
What happens by default
Where your bitcoin sits decides what your family faces.
| Situation | What happens when you die |
|---|---|
| Self-custody, no plan | The bitcoin stays on the blockchain, unspendable. Unless someone finds your seed phrase and knows what it is, it is gone for good. |
| Self-custody, with a plan | Your heirs follow your instructions, restore the wallet, and move the bitcoin. No company or court has to cooperate. |
| On an exchange | Your executor files a claim with the exchange. Kraken, for example, asks for the death certificate, proof of appointment as the estate's legal representative, photo ID, and a signed letter, and says it does not currently offer a way to add a beneficiary. |
Exchange custody is the easiest to inherit and the riskiest to hold while you are alive, and self-custody is the reverse.
The three things your heirs need
- Access to the keys, meaning the seed phrase backup or enough seed phrases to meet a multisig threshold, plus any passphrase.
- Knowing which wallet software to use, the script type, and for multisig, the wallet descriptor with every public key.
- Legal authority to act on your assets, which in most estates belongs to an executor or trustee. Work that part out with an estate attorney.
Most failed inheritances miss the second item. A family that finds 24 words on a steel plate in a safe often has no idea what they are, what to do with them, or which scam site not to type them into.
Write a letter of instruction
A letter of instruction is a plain document, separate from your will, that tells your heirs where things are and what to do. It should not contain the seed phrase itself.
- 1List what you own and where: which hardware wallets, which apps, which exchange accounts, and roughly how much is in each.
- 2Say where each backup is stored (a safe, a safe deposit box, a relative's house) without writing down the words.
- 3Name the wallet software and settings to restore with: for example, Sparrow, Native Segwit, single signature, passphrase yes or no. For multisig, say where the descriptor backup is.
- 4Name one or two technical people your heirs can trust for help, and warn them in plain words: no real support agent will ever ask for the seed phrase.
- 5Store the letter where your executor will find it, and review it every time your setup changes.
Why the seed phrase does not belong in your will
A will passes through lawyers, executors, and the probate court. In Indiana, for example, the court clerk copies every will admitted to probate into a Record of Wills indexed by name. Anyone who reads a seed phrase in that chain can take the bitcoin before your heirs do.
Use the will to say who inherits your bitcoin, and the letter of instruction and the backups to make it possible. Keep those two apart, or use a setup where no single document is enough.
Inheritance setups compared
A single hardware wallet plus a letter works for many people. Larger amounts justify a setup where no one person, including your heir, can spend alone.
| Setup | How it works | Trade-off |
|---|---|---|
| Single-sig + letter | Heir gets the seed backup location and the letter | Simple. Whoever finds the seed can spend it. |
| Family multisig | A 2-of-3 multisig with a key held by a trusted heir or executor | No single key spends. You manage three backups and the descriptor. |
| Timelock recovery | An extra spending path that opens after a delay you set, using Bitcoin's timelock opcodes | Heir cannot spend early. You may need to refresh coins before the timer runs out. |
| Collaborative custody | A company holds one key in a multisig and guides your heirs | Annual fee and less privacy, but help exists when the family needs it. |
Bitcoin has two kinds of timelock. BIP65 (CHECKLOCKTIMEVERIFY) makes an output unspendable until a set date or block height. BIP112 (CHECKSEQUENCEVERIFY) restricts a spending path based on how long ago the coins last moved. Liana, a free, open-source Bitcoin-only wallet, builds recovery paths for family members that open after a delay you configure. Nunchuk's on-chain inheritance uses a timelock that removes its platform key and lowers the signing requirement when the date arrives.
Paid services I track on my inheritance page include Unchained ($250 a year per vault, you hold two of three keys) and Nunchuk's Honey Badger plan ($480 a year, with two 2-of-4 wallets and a dedicated inheritance key).
Test the plan before you need it
Do a dry run with a small amount: give a trusted heir the letter and a test backup holding a few dollars of bitcoin, and watch them restore it on a spare hardware wallet without your help. Where they get stuck is where your letter needs more detail. Repeat after any change to your wallets, and when your family situation changes.
Frequently asked questions
What happens to bitcoin when the owner dies?
It stays where it is on the blockchain. If someone has the seed phrase and knows how to use it, they can move it. If not, it is permanently unspendable. Bitcoin on an exchange is released to the estate through the exchange's claims process.
How do I set up Bitcoin inheritance?
Decide who inherits in your will, then write a separate letter of instruction that explains where the backups are and how to restore them. For larger amounts, use a multisig or timelock setup so no single document or person can spend alone, and test the plan with a small amount.
Can I put my seed phrase in my will?
No. Wills are read by lawyers and executors, and once probated they become part of the court's records. Put who inherits in the will and keep the seed phrase in a secure backup your letter of instruction points to.
What if my family finds my seed phrase but does not know what it is?
They may ignore it, throw it out, or type it into a scam site. A letter of instruction that names the wallet software and warns against sharing the words prevents all three.
Can I name a beneficiary on my exchange account?
Check with your exchange. Kraken, for example, says it does not currently offer beneficiaries. Your executor files a claim with a death certificate and proof of legal authority instead.
Do heirs pay tax on inherited bitcoin?
The IRS treats bitcoin as property, not currency, for US tax purposes. How inherited property is taxed depends on your estate, so ask an estate attorney or tax professional.