Key takeaways
- Crypto is inherited like any other asset, but if nobody knows about it or can reach the keys, it can be lost for good.
- If you hold crypto in self-custody, your heirs need to know it exists and how to access it. The recovery phrase still doesn't belong in your will.
- Crypto held with a custodian goes through the normal estate process, and heirs prove their authority with documents from the district commissioner.
- A lawyer's advice is sensible when you make a will or have significant assets.
Contents
Crypto is inherited like any other asset, but it is far easier to lose. If the crypto is in Self-custodySelf-custodyHolding the private keys to your crypto in your own wallet, so nobody else controls it but all the responsibility for the keys is yours. and nobody knows about it, or nobody can reach the keys, it is gone for good. No bank, district commissioner or court can open the wallet.
A little preparation can prevent that. This article explains how to prepare things for your heirs, what heirs need to do, and how an estate is settled when crypto is held with a custodian.
Why is crypto so easy to lose?
A bank balance doesn't disappear when its owner dies. The bank knows who owns the account and pays out once the estate is settled. Crypto in self-custody works differently. Whoever holds the private keyPrivate keyA secret number that proves you own the crypto in your wallet. Whoever holds the private key controls the crypto. controls the crypto, and nobody can create a new key to the same wallet.
Three things can go wrong:
- Nobody knows the crypto exists. Unlike a bank account, no statement about it arrives in the post.
- Nobody can reach the keys. The heirs know about the wallet but can't find the recovery phraseSeed phraseA list of 12 or 24 words that backs up every key in your wallet, so whoever has the words can restore the wallet and take the crypto., or don't know how to use it.
- The wrong person is trusted. Heirs who know little about crypto can be easy prey for scammers who offer "help" and ask for the recovery phrase.
When crypto is held with a CustodianCustodianA company that holds crypto and the keys to it on behalf of customers, such as a licensed crypto exchange., such as a crypto exchangeCrypto exchangeA company or platform where you buy, sell and swap crypto, for example with krónur., the situation is different. There is an account in the owner's name, just as at a bank, and the heirs can claim the assets with the right documents. That helps little, though, if nobody knows the account exists. The difference between the two is explained in Custodial or self-custody: who holds your crypto?
If you own crypto: how to prepare
Keep a list of your assets
Write down which crypto you own and where: with which provider, in which crypto walletCrypto walletAn app or device that holds the keys to your crypto and lets you receive, store and send it. and whether you use a hardware walletHardware walletA small device that keeps private keys offline and signs transactions inside the device, so the keys never reach your computer or phone.. The list should not contain the keys themselves, only the fact that the assets exist and where they are. Update it when anything changes.
Don't write your recovery phrase in your will
A will is not a secret document. In Iceland it is often certified by the district commissioner (sýslumaður), who keeps a copy, and after a death it can pass through many hands. A recovery phrase written in a will is no longer a secret, and anyone who reads it can empty the wallet.
Your will can, however, say that the crypto exists, who should receive it and where the instructions are kept.
Leave secure instructions
Write instructions that someone without special knowledge can follow: which wallet you use, where the recovery phrase is kept, whether there is an extra passphrase and how to restore the wallet. Keep the instructions in a different place from the phrase itself, for example:
- the recovery phrase in a sealed envelope in a safe or with a lawyer
- the instructions with a trusted person, without the phrase
Test restoring the wallet from the phrase, so you know it works. If the amounts are large, you can spread the risk with MultisigMultisigA wallet set-up that needs signatures from more than one key before crypto can be sent, for example two out of three., where more than one key is needed to move the crypto. That takes some know-how, though, and can make things harder for your heirs if the instructions are unclear. Read more about private keys and recovery phrases.
Choose a trusted person
It helps if someone you trust knows that the crypto exists and where the instructions are. That person doesn't need access to the phrase itself while you are alive. If your heirs know little about crypto, it can be wise to name someone who does and who can help them.
Get legal advice
Inheritance can be complicated, especially if you want to leave assets through a will. District commissioners don't draft wills, and Ísland.is recommends getting help from a lawyer. A lawyer can also keep your instructions and make sure they reach the right people.
If your crypto is with a custodian, it is usually enough for your heirs to know where it is. Don't share your login or PIN with them. Access is personal, and the provider will need formal documents from your heirs anyway.
What should heirs do?
Secure what is there
Gather up phones, computers, hardware wallets and papers and keep them somewhere safe. Never type a recovery phrase into a website, and never give it to anyone who offers help. No legitimate service asks for a recovery phrase.
Look for clues
Signs of crypto can turn up in many places:
- apps on a phone or computer, such as a wallet or a crypto exchange's app
- emails from crypto providers, such as purchase confirmations
- transfers to crypto providers on bank statements
- small devices that look like USB sticks, which may be hardware wallets
- a sheet of paper with 12 or 24 words
The last tax return can help too. It shows the deceased's assets and debts, and crypto should be declared like any other asset.
Follow the estate process
Crypto is part of the estate like any other asset. Within four months of the death, the heirs must decide how the estate will be settled. The main options are:
- Remaining in an undivided estate (seta í óskiptu búi). A surviving spouse can apply for permission to keep the estate undivided, and then becomes personally liable for the deceased's debts.
- Private division (einkaskipti). The heirs get a permit for private division from the district commissioner and divide the estate themselves. With the permit, the heirs take responsibility for all of the deceased's assets and debts.
- Public division (opinber skipti). The district court appoints an estate administrator (skiptastjóri) to handle the division. This route is used when the conditions for the other options aren't met, or when an heir asks for it.
- An estate without assets (eignalaust dánarbú). If the estate's assets don't cover the funeral costs, it can be closed as an estate without assets.
An application for private division must list all assets and debts on the date of death, and crypto is no exception. Inheritance tax is then calculated from the value of the assets on the date of death. Crypto prices move, so it is wise to record the value on that date straight away.
Until the permit for private division is issued, heirs may not dispose of the estate's assets, but they must look after them. If you can access the deceased's wallet, keep that access safe, but don't sell or move the crypto until the permit has been issued. If you fear that someone else could get into the wallet, talk to the district commissioner or a lawyer about the next steps.
Crypto held with a custodian
When crypto is held with a custodian, the heirs contact the custodian and prove their authority. At Myntkaup, the process is as follows:
- The heirs contact Myntkaup by email at myntkaup@myntkaup.is or through the contact form.
- The person authorised to settle the estate provides a document from the district commissioner. It shows permission for private division (leyfi til einkaskipta) and that this person has that authority.
- The heirs can choose to have the assets sold and paid in krónur into the estate's bank account, or to have them transferred.
- This typically takes a few days.
If the estate is settled in another way, it is best to get in touch and ask which documents are needed. With foreign providers, the process can take longer, for example if documents need translating.
Frequently asked questions
Should I write my recovery phrase in my will?
No. A will can pass through many hands, and anyone who reads the phrase can take the crypto. Instead, write in your will that the crypto exists and where the instructions are kept, and store the phrase itself somewhere safe.
What if nobody can find the recovery phrase?
If the crypto is in self-custody and neither the phrase nor a working wallet can be found, it is most likely lost. Be wary of anyone offering to recover it for a fee. Read Lost access: your login or your wallet key?
Do heirs pay tax on inherited crypto?
Crypto is an asset in the estate and counts when inheritance tax is calculated. If an heir later sells the crypto, a capital gainCapital gainsThe profit from selling an asset for more than it cost you; for individuals in Iceland, gains on crypto are taxed as capital income. may also arise. Read Crypto and tax in Iceland, and talk to your accountant or Skatturinn about your own situation.
Closing thoughts
Crypto is inherited like any other asset, but only if someone knows about it and can reach it. A list of your assets, secure instructions and a trusted person make all the difference, and the recovery phrase never belongs in your will.
If you are an heir, take your time, trust nobody who asks for a recovery phrase, and follow the normal estate process with the district commissioner.
