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Trust Law/Level IX · Trusts on chain/9.1 Digital assets in trust/Lesson 4

Exchanges, accounts and access at death

Why assets on an exchange depend on the exchange’s terms, how estates deal with an account holder’s death, and what the FTX and Celsius bankruptcies showed about custodial risk.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Cheapest access plan: use any beneficiary-at-death feature the exchange offers, or open the account in the revocable trust’s name, so it passes outside probate. Catch: each exchange’s terms decide, many offer neither, and the account then goes through the estate.
  2. For small estates, collect without full probate: in California a small-estate affidavit works where the decedent’s California property is $208,850 or less, for deaths from 1 April 2025 (Form DE-300). Catch: the exchange may still require a death certificate and its own forms.
  3. Never log in as the deceased: RUFADAA §15(b) bars using fiduciary authority to impersonate the user. File the exchange’s estate claim with letters or a certification of trust (UTC §1013). Catch: the uniform act’s 60-day compliance period may differ by state.
  4. To cut custodial risk at no cost, keep long-term holdings in self-custody covered by the estate plan; FTX customers became bankruptcy creditors and Celsius Earn customers unsecured creditors. Catch: self-custody puts the whole burden of the keys on the holder and heirs.

MaterialsThe death or estate section of an exchange’s terms of service or help pages, read as an exampleThe Wikipedia articles on Celsius Network and on the bankruptcy of FTX, for the course of each caseLesson 9.1.5, on RUFADAA, and lesson 9.1.2, on keys and custody

Wonder

  1. If an exchange holds the keys, what exactly did the account holder own?
  2. Why might an executor be unable to log in to an account and still be able to claim it?
  3. What happened to customers’ claims when FTX and Celsius went bankrupt?

Explore

  1. When coins are held on a custodial exchange, the exchange controls the private keys and the customer has an account governed by the exchange’s terms of service. What the customer owns is defined by that contract: under some terms the exchange holds assets for the customer, and under others ownership passes to the exchange and the customer has a claim against it. When an account holder dies, the account does not simply pass to whoever knows the password; the estate must use the exchange’s own death or estate process. This lesson describes how such processes generally work and recommends no exchange.
  2. Exchanges’ estate processes differ, but they commonly ask for a death certificate, proof of the claimant’s authority, such as letters testamentary or letters of administration from a probate court or a small-estate affidavit, and identification. For an account held in a trust, the trustee may need trust documents, such as a certification of trust. In the US, RUFADAA sets rules for when a custodian must disclose a user’s digital assets to a fiduciary, and an exchange may be a custodian under it (lesson 9.1.5). Estates that cross borders may need documents recognised in the exchange’s country.
  3. Security features affect the people handling an estate more than the legal claim. If the decedent’s phone or security key for two-factor authentication is lost, the executor may be unable to log in, but the estate’s claim normally goes through the exchange’s estate process, not the login screen. Logging in as the decedent can breach the terms of service, and RUFADAA provides that a fiduciary’s authority may not be used to impersonate the user. An exchange may also freeze an account once it learns of a death, or for compliance reasons, until the estate process is complete.
  4. The exchange itself can fail. FTX filed for Chapter 11 bankruptcy in Delaware on 11 November 2022, and its customers became creditors in the bankruptcy, with claims measured in US dollars at their value on the filing date. Celsius Network filed for Chapter 11 on 13 July 2022. In January 2023, the bankruptcy court ruled that coins deposited in Celsius’s Earn accounts belonged to Celsius under its terms of use, so about 600,000 Earn customers were unsecured creditors. Holders of Celsius’s separate custody accounts were treated differently, which shows how much the account terms mattered.
  5. Some accounts let the holder name a beneficiary to receive the account at death. Where such a feature exists, its effect depends on the contract and on state law; in the US, such designations generally take effect outside the will. Many exchange accounts offer no such feature, and the account then passes as part of the estate, usually through probate, unless it is held in a trust. An account opened in a trustee’s name, where an exchange allows trust accounts, is governed by the trust’s terms instead. Rules differ by exchange and jurisdiction, so each account’s terms decide.
  6. These risks differ in kind. Contract risk means the estate must meet the exchange’s terms and process. Access risk means security features, such as two-factor authentication, can delay the people handling the estate. Custodial risk means the exchange can fail, freeze withdrawals or go bankrupt, and its customers’ rights then depend on its terms and the bankruptcy court. Self-custody removes the exchange as a middleman but places the whole burden of protecting the keys on the holder (lesson 9.1.2). Neither approach removes risk, and this lesson does not suggest one over the other.

Key facts

  • Assets on a custodial exchange are held under the exchange’s terms of service, which define what the customer owns.
  • When an account holder dies, the estate generally uses the exchange’s estate process, which commonly requires a death certificate and proof of the representative’s authority.
  • Under RUFADAA, a fiduciary’s authority over a user’s digital assets may not be used to impersonate the user.
  • FTX filed for Chapter 11 bankruptcy on 11 November 2022, and its customers became creditors with claims measured at filing-date values.
  • Celsius Network filed for Chapter 11 bankruptcy on 13 July 2022.
  • In January 2023, the Celsius bankruptcy court ruled that coins in Earn accounts belonged to Celsius under its terms of use, making Earn customers unsecured creditors.

Exercise nine, six, three, one

9CollectList up to 9 points about exchange accounts at death described in this lesson or in an exchange’s terms you are reading (some sources give fewer), such as required documents, two-factor authentication, account freezes, beneficiary features or bankruptcy outcomes.
6ClusterSort them into 6 categories: document requirements, technical access, beneficiary features, account freezes, estate administration, and exchange insolvency.
3DistillReduce the 6 categories to 3 groups: contract risk, access risk and custodial risk.
1CrystallizeWrite 1 sentence explaining, in your own words, why the Celsius ruling on Earn accounts turned on the exchange’s terms of use.

Fact check

Dates, figures and claims checked against the published sources listed below.

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