Digital assets such as crypto coins are based on blockchain technology. The user needs a public address (‘Public Key’ or ‘PUK’) and a corresponding private key (‘Private Key’ or ‘PIK’) to access, control and transfer the assets.

The public address ‘PUK’ and the private key ‘PIK’ – and not the crypto coins themselves – are managed via a digital purse, the so-called ‘wallet’. The wallet can be accessed with a PIN (hardware wallet) or a password (software wallet) and is secured with a ‘seed phrase’ acting as a backup. Accordingly, the system is associated with risks: If the ‘PIK’ or ‘Seed Phrase’ are lost, it is no longer possible to access the wallet and the owner can no longer dispose of the assets.

Ensuring access of heirs

The testator would be well advised to ensure that his digital assets do not become inaccessible upon his death by ensuring that the heirs or an executor have access to them. Forward-looking estate planning is therefore key. The heirs must be aware of the stock and amount of the digital assets, and necessary steps must be taken to ensure access.

For estate planning, a distinction must be made as to whether the testator manages his digital assets himself using a ‘self-custodial wallet’ and can access the digital assets directly, or whether he manages them in a ‘third-party custodial wallet’ via a third party (service provider), who alone has access to the digital assets.

Third-party custodial wallets

If the testator keeps the digital assets in a third-party custodial wallet, the contractual relationship with the third party is generally passed to the heirs by law or by including provisions in a will.

Most third-party providers may require a form of grant of representation (certificate of inheritance, grant of probate) to access digital assets. If the third-party provider is based abroad, the legal relationships are often subject to a foreign legal system. In such scenarios, it is advisable to clarify the need for action with local experts.

Self-custodial wallets

The situation is more complex if the digital assets are stored in a ‘self-custodial wallet’: In this scenario, the heirs do not have either a financial intermediary (third-party provider) or a private body or public authority to approach in order to obtain the necessary information to access the digital assets. In this case, the heirs can only access the digital assets by knowing the public keys (‘PUK’) and private keys (‘PIK’) – or the corresponding ‘seed phrase’ (12–24-digit password) stored using online, desktop, mobile, paper or hardware wallets.

To ensure access in the event of death, the testator must note in his will or in a separate document which digital assets he owns (‘crypto assets inventory’), how they are managed and how they can be accessed. Depending on the jurisdiction, this information may be deposited with the executor or with a public notary in a sealed envelope. If the testator prefers to keep the passwords ‘PIK’ and ‘Seed Phrase’ secret or if the heirs are not familiar with digital assets, the testator can appoint a person skilled in digital assets (e.g. executor or trustee) to assist the heirs in accessing the digital assets.

Conclusion for digital asset investors

Remember – it should be noted that the legal and tax consequences of handling ‘PUK’, ‘PIK’ and ‘seed phrase’ depend on the circumstances of the relevant jurisdiction, and this should be considered, particularly regarding custody and transfer.

Forward thinking and reliable planning by the testator is essential from the perspective of the heirs. It is essential that the heirs are informed of the existence of the digital assets and that the corresponding access to them is ensured.