Step 1: Preheat your oven to 325°F (160°C). Place four 4-ounce ramekins into a larger baking pan with high sides.
Step 2: In a medium saucepan, combine heavy cream, whole milk, dry sherry (or white wine), minced shallot, and cayenne pepper. Heat over medium heat until it just begins to simmer. Remove from heat and let it steep for 10-15 minutes. Strain the mixture through a fine-mesh sieve to remove the shallots.
Step 3: In a separate bowl, whisk the egg yolks until smooth. Slowly temper the egg yolks by drizzling about half of the warm strained cream mixture into them while continuously whisking. Pour the tempered egg yolk mixture back into the remaining warm cream, whisking until fully combined. Season with salt and black pepper.
Step 4: Gently fold in the picked lump crab meat into the custard base. Distribute the mixture evenly among the prepared ramekins.
Step 5: Carefully pour hot water into the larger baking pan, creating a water bath that reaches about halfway up the sides of the ramekins. Bake for 30-35 minutes, or until the custards are just set but still have a slight jiggle in the center.
Step 6: Remove the ramekins from the water bath and let them cool completely on a wire rack. Once cool, cover with plastic wrap and refrigerate for at least 4 hours, or preferably overnight, for best setting and flavor development.
Step 7: Just before serving, uncover the chilled custards. Sprinkle 1-2 teaspoons of granulated sugar evenly over the top of each ramekin. Use a kitchen torch to caramelize the sugar until it forms a deep amber, crisp crust. Serve immediately.