What will happen when holders of Bitcoin die?
We will cease breathing our bodies will be disposed of and anyone close to us will grieve even if they hated us.
Would it be possible to pass down their digital wealth through a will? How could that be securely done?
Private keys held in exactly the same manner vault keys and account passwords and such are. M of N authentication could insure your benefactors have knowledge and information and the attorney has the final piece.
Would we see a massive amount of coins lost forever over time?
Inevitably, for various definitions of "massive". The same holds true for things like precious metals, guns, guitars and classic cars. There is attrition through destruction and loss thereby increasing the value of the remaining.