Crypto Inheritance Risks and Controls: Preventing Lost Access and Preventing Theft

A comprehensive look at the threat model for crypto inheritance — what can go wrong, and what controls (process and technical) reduce risk without compromising access.

The threat model

Crypto inheritance faces two opposing risks. Lost access: no one can recover the assets because keys are lost, destroyed, or inaccessible. Unwanted access: someone gains access who shouldn't — through theft, impersonation, or exploitation of weak controls. Most planning fails because it addresses only one risk. Sharing seed phrases with family solves the access problem but creates theft risk. Keeping everything secret solves the theft problem but guarantees permanent loss. Effective planning balances both: ensuring recovery is possible while limiting exposure to verified parties at the right time.

Common failure points

Analysis of failed crypto inheritances reveals recurring patterns. Single seed phrase stored in unknown location (lost forever). Seed phrase written on paper destroyed in fire or flood. Hardware wallet with forgotten PIN and no backup. Exchange account locked due to 2FA device being lost with deceased. Family member shares 'recovery help' request publicly and attracts scammers. Multiple trusted contacts given full access, leading to internal disputes or theft. No verification process, allowing impersonation. Each failure point represents a control gap that could have been addressed with proper planning.

Controls: process and technical

Process controls: documented trusted contacts with verified identities, defined authority chains (who can act, when, in what order), recorded verification calls with rotating codes, escalation procedures for failed checks, periodic reviews to confirm contacts are still reachable and willing. Technical controls: multisig arrangements requiring multiple parties to authorise transactions, time-locked recovery mechanisms, compartmentalised wallet structures limiting exposure per recovery path, hardware security modules for high-value holdings. The right mix depends on asset value, family complexity, and risk tolerance.

Privacy and exposure caps

Not everyone needs to know everything. Compartmentalisation limits exposure. Trusted contacts may know their role without knowing total holdings. Different wallets can have different recovery paths and different trusted contacts. No single point of failure exposes everything. Exposure caps set maximum values per wallet or per recovery path — limiting losses if any single path is compromised. This approach supports both privacy (limiting what any party can see) and security (limiting what any breach can take).

Verification design

Verification is the critical control point. When recovery is triggered, how do you confirm the person requesting access is who they claim to be? A robust design includes: multi-factor identity verification (recorded video call, government ID, knowledge-based questions), rotating verification codes issued at time of contact (not pre-shared), cross-referencing against documented Policy Pack and legal documentation, independent confirmation from multiple trusted contacts where possible, and clear escalation when checks fail. This creates friction for attackers while providing auditable proof for legitimate claimants.

Audit trails

Every action in the recovery process should be logged. Audit trails protect everyone: the executor can prove they followed proper process, beneficiaries can see that verification was rigorous, and fiduciary oversight is satisfied. Logs should include: timestamps for every contact and decision, identity of all parties involved, verification methods used and outcomes, any failed checks or escalations, and final disposition of recovery request. Bitzo maintains comprehensive audit trails for all coordination activities — supporting compliance and providing defensible records. Learn more about our crypto inheritance approach.