Safeguarding Private Keys and Seed Phrases: Concepts for Incapacity and Succession

The trade-off: secure yet accessible

Whoever maximally protects a seed phrase against third-party access risks nobody reaching the assets on death or incapacity. Whoever makes it too accessible risks theft. Every custody concept must resolve this conflict for the concrete situation – depending on the value involved, the family situation and the technical skills of those concerned.

Proven building blocks

• Sealed envelope with the notary: notarial custody of documents (secs. 57 et seq. BeurkG) can be used for papers enabling wallet access, with clearly defined release conditions (e.g. only to the executor against proof). Important: the notary keeps documents – not the crypto assets themselves; he does not become a crypto custodian in the regulatory sense.
• Bank safe deposit box: the classic solution with clear access rules; heirs obtain access with proof of succession. Consider termination risks and opening hours.
• Shamir's Secret Sharing: the seed phrase is split cryptographically into several parts of which, say, three out of five suffice for recovery. Parts are distributed among trusted persons or locations – no individual can access alone, and losing some parts is tolerable.
• Multi-signature wallets: transactions require several signatures (e.g. 2 of 3 keys held by owner, spouse, trusted person) – effective protection against theft and extortion already during lifetime.
• Hardware wallets with documented storage: device, PIN and recovery data are kept separately; the storage locations are documented traceably for attorneys-in-fact and heirs.

Independent educational resources such as Blocktrainer (German) offer sound technical introductions to hardware wallets, multi-signature setups and Shamir's Secret Sharing. The legal framing – who may access what, and when – is what the notarial instruments provide.

The link to the legal instruments

The custody concept only works together with the deeds: the will governs who receives the crypto assets and refers to the custody system; the power of attorney authorises access on incapacity; release conditions at the notary or bank ensure the right person gains access at the right time. Access data never belong in deeds that will be opened and disclosed.

Escrow and transaction security

In company sales and larger crypto-related transactions, escrow structures can be appropriate, with access documents deposited until defined conditions are met. How seriously courts take a custodian's duties is shown by recent case law: a trustee obliged to release crypto assets must undertake everything possible and reasonable – including engaging specialised recovery providers (Higher Regional Court of Cologne, order of 26 June 2024 – 11 W 15/24).

Multi-signature with a notary or provider as co-signatory

A multi-signature concept can be structured so that an independent body holds one of several keys and only participates under defined conditions – for instance in the inheritance case against presentation of the death certificate and proof of succession. Specialised, regulated custody providers may be considered; the notary in turn can structure the contractual conditions and keep documents. The clear separation is important: the notary keeps no crypto assets and does not become a supervised crypto custodian, but secures the legal structure.

The access memorandum

In addition to the deeds, a structured "access memorandum" is advisable: a guide, comprehensible to heirs and attorneys, of which wallets and custody forms exist, where backups are located and how to proceed in an emergency – without the secrets themselves appearing in it. It is kept separately from the keys but findable, and updated regularly. This is how relatives find their way to the holdings in the first place, instead of facing an unknown pool of assets.

Regular review

A custody concept is not a one-off act. Wallets change, hardware ages, trusted persons drop out, holdings grow. A periodic review – ideally coupled with the regular updating of the will and power of attorney – ensures the documentation stays current and holds up in an emergency.