¶ 2201
Overview
Scope of the chapter. This chapter examines the arrangements by which control of self-custodied digital assets passes to another person when the owner dies or loses capacity. Chapter 21 treats the instruments of an estate plan: the will, the revocable trust, the power of attorney and the letter of instruction. This chapter treats the mechanisms that sit beside those instruments and decide, as a matter of fact, who will be able to sign a transaction after the owner can no longer do so. It describes seven families of technique in generic terms, analyses each as a legal arrangement, and then applies the law of wills, will substitutes, spousal rights, creditors' rights, fiduciary access, agency and taxation to them. It closes with guidance on choosing a design, two model provisions and a checklist.
The problem stated. An asset held through a custodian passes on death in the ordinary way. The personal representative proves authority, the custodian checks it, and the custodian changes the name on the account or delivers the asset (ch. 13). An asset held in self-custody has no custodian to perform that function. The ledger recognizes whoever produces a valid signature from the private key that controls the address. The estate may hold perfect legal title to the tokens and still be unable to move them, and a stranger who has copied the recovery phrase may move them at will. Key succession is the work of bringing the practical power to sign into line with the legal right to own.
Two questions in every design. Each technique answers two questions, and a design that answers only one of them fails. The first is technical: after the owner's death or incapacity, can the intended person produce a valid signature, and can no one else? The second is legal: when that person signs, does the law treat the resulting transfer as a valid transfer to someone entitled to receive it, free of the claims of the estate, the surviving spouse and the owner's creditors? A seed phrase left to a child in a sealed envelope may answer the first question well and the second badly, because the envelope is not a will and the child may hold what the child receives for the estate.
Organization. ¶ 2210 states the succession problem and the ways it fails. ¶¶ 2220 through 2250 describe the families of technique: sealed storage of the recovery phrase (¶ 2220), split secrets and shared control (¶ 2230), time locks and inactivity triggers (¶ 2240), and recovery guardians, key-holding services and the transfer-on-death features some custodians offer (¶ 2250). ¶ 2260 asks whether a transfer that takes effect at death through one of these techniques is testamentary, and examines the statutes that answer that question for named instruments and the decisions that show what happens outside them. ¶ 2270 addresses the surviving spouse, creditors, capacity and incapacity. ¶ 2280 addresses fiduciary access, the liability of key-holders, estates in which keys are lost, and tax. ¶ 2290 offers guidance on choice of design, two model provisions and a checklist.
Relation to other chapters. The technology of keys, signatures, multi-signature wallets and threshold schemes is explained in ch. 2, and the legal meaning of control under U.C.C. § 12-105 in ch. 6. Custody models, including collaborative custody in which a client and a service each hold a key, are compared in ch. 9. Fiduciary access to accounts held by custodians under the Revised Uniform Fiduciary Access to Digital Assets Act is the subject of ch. 13. Trustee duties to take control of and secure trust property are treated in ch. 14, and drafting key-management provisions into a trust instrument in ch. 15. Liability for lost keys is examined in ch. 16, estate-planning instruments in ch. 21, and valuation and transfer taxes in ch. 23.
Terms used. In this chapter, the owner is the person who holds the assets in self-custody during life. The recovery phrase is the word list (commonly twelve or twenty-four words) from which a wallet's private keys are derived, as described in ch. 2. A key-holder is any person other than the owner who holds a key, a key share or a recovery phrase, or who holds the power to approve a recovery. A successor is the person the owner intends to receive control. A trigger is the event on which the design is meant to shift control: death, incapacity, or a period of inactivity that the design treats as evidence of one or the other. These are working terms and carry no statutory meaning.
The neutral description of techniques. Commercial products combine these techniques in many ways and change them often. The chapter therefore describes each technique by its function, without reference to any product, and states the legal analysis by reference to function. A practitioner reviewing a particular product should identify which of the techniques it uses, who holds each key or share, what event moves control, and whether the owner can change the arrangement alone. The answers to those four questions decide most of the legal issues discussed below.