In the crypto universe, death has become so much different in this day and age. Before, the process was simple: Write your own will (or engage a lawyer to help you out), store your certificates, deeds, and contracts in a safe deposit box, keep safe it in a bank or your home, and you’re all set.
But with bitcoin estate planning, the complexities of cryptocurrency in wills have changed the status quo, or shall we dare say, it is continuously shifting. From crypto to online contracts, to new laws and other considerations that account for financial accounts and other assets, it’s a whole new world out there.
Whilst the existing laws remain such as needing an executor to know your full cryptocurrency holdings and how to access them (which others deem debatable – more on that later), it is the access that is the trickiest part when planning to hand down digital assets to heirs.
Why is this important?
With the increasing popularity of cryptocurrency, “Estate planning is a must, not an option.”
“While the future value of Bitcoin may be uncertain, for certain you need an estate plan, and you shouldn’t let your investment die with you.”S
It is vital to develop a blockchain estate planning method on how you can pass down to the trustees, executor, or direct heirs the important details of the bitcoins of the deceased. If they are only equipped with a legal plan that contains no technical access scheme, then cryptocurrency inheritance may be impossible. As they say, without keys, a court order is impotent. Why does this matter, you ask? To put it simply, your keys, your bitcoin. Not your keys, not your bitcoin.
So now, how do you access the digital assets?
Your executor or trustee plays a crucial role when accessing the bitcoins of the deceased. Without your private keys, there is no way they can distribute the cryptocurrency in wills. But don’t be too quick to act. It is vital to consider who the individuals are that have access to your will.
If you store information containing your seed phrase or keys and someone like your lawyer or outside executor reads the will, they might record the information and steal your coins. So possibly, to avoid that, you may consider keeping your wallets in a storage vault or other ways of protecting it through proper bitcoin estate planning. It pays to think carefully about how exactly the beneficiaries of your will can access the assets.
Types of wallets
In one of our previous articles, we mentioned that when somebody says they own bitcoin or any other cryptocurrency, what it means is that they control access to the public and private keys that are needed to use the currency held at their public address.
We also differentiated between the different types of wallets you can use:
- Web wallets – This type of wallet interface is accessed directly within your web browser. For example: Blockchain.com.
- Software wallets – Allow you to maintain control over your cryptocurrencies through a downloaded software on your computer or mobile device. You can sign transactions online or offline. For example: Electrum.
- Paper wallets – This type of wallet is the simplest form of cryptocurrency. It is a document that contains your public/private keys and QR codes for sending and receiving crypto. For example: Bitcoin Paper Wallet.
- Hardware wallets – These store private keys in an encrypted manner and allows you to sign transactions without the need to transfer keys to other devices. This is perfect for long-term storage. For example: Trezor.
In our more comprehensive guide, we thoroughly discuss the security precautions, advantages and disadvantages, examples of these wallets, and other types of cryptocurrency wallets. Before putting your money into bitcoin, it’s a good idea to understand which type(s) of wallets are best suited for your needs.
Importance of wallets
Wallets can be tricky topic in blockchain estate planning, especially for your heirs. When you create a wallet, you are given a seed phrase (normally 12-24 words). Using this unique seed phrase, you can generate unlimited pairs of private and public keys to store your bitcoin in.
So how do you know if you control your keys?
If you are using a hardware wallet, you own your keys. If you’re on a software wallet that is constantly reminding you to backup your wallet, most probably, you own your own keys too.
Bitcoin Estate Planning for the owner
Bitcoin estate planning is not the most delightful topic to talk about. It can be an emotional one, which could rather be ignored or delayed. But reality check, we have no idea when that day will come. Nobody stays young and healthy forever – if it is your time, your family will most likely appreciate having a comprehensive plan for accessing your coins.
If your wealth is stored in a bank and something happens to you, the court can order the bank to give the assets to your executor. But with the more complex structure of cryptocurrency inheritance, it’s a different ball game. Aside from the legal system issues, the core concern is:
If you have not done it yet, it’s best to draft one as soon as you can. This article walks you through the seven steps on how to design your plan:
- List down all your assets and what you want to protect.
Best done offline, this list includes the bitcoins of the deceased, total current holdings, where they are held (wallets, exchanges, etc), and the corresponding current value at the time of writing.
- Split up your assets into tiers.
The number of tiers depends on your needs, but it is advisable to keep an accessible one for petty cash and another for long term storage.
- Create a plan for each tier.
For your petty cash tier, you might want to appoint a single signatory, but for the long-term tier, to keep it more secure, you may want to consider a multi-signature software solution that integrates with your hardware wallet.
- With each tier, decide who inherits what and how that will happen.
It’s important to know if your heir has a good grasp of the crypto universe. Your plan should necessarily cater to the level of crypto understand of those that are required to execute upon the will.
- Test your plan.
Make sure every aspect of the plan can be executed.
- Implementation is key.
Move your assets to the selected tiers and test again within six months.
- Back it up.
Store your backups in geographically-diverse, secure, access-controlled locations.
In blockchain estate planning, it is essential to find a good balance between security and ease of use. To help you, here is a free template to guide owners on how you can pass your cryptocurrency inheritance onto your heirs.
Some useful tips about this template:
- This bitcoin estate planning template allows for full customisation depending on your needs, which will be useful to your heirs.
- Always remember to be accurate with each sentence and phrase. Irrelevant ones do not need to be there.
- Explain thoroughly the kinds of assets, key locations, access controls such as PINs, passphrases, and multisignature or timelock requirements for optimal security.
- As values of local currencies fluctuate, it is advisable to avoid stating exact figures.
The steps to use this letter, required additional legal documentations, and access control table or narrative are included in this complete guide as well.
Cryptocurrency inheritance for heirs
In one of Andreas Antonopoulos’ talks, he revealed that “a lot of people have no idea how to even start to decide if they control the keys.”
He furthered this by saying, “If you are running a wallet, where each time you do a transaction, it generates a new address. But if you started using that wallet and it told you something like, ‘Write down these 12 words or these 24 words and keep them as a backup. Those words—they generate all your keys and the reason you have to write it as a backup is because if you lose those words, you lose the keys…you lose the bitcoin.” Do not forget: There is no such thing as a bitcoin helpdesk.
What your heirs need to know
It is through exchanges such as Coinbase, Bitfinex, Poloniex, Kraken, and Xapo that people buy their first bitcoin or ether through their local currency. Pamela Morgan states in her article that most exchanges are centralised and hold funds for you in an account to allow you to trade between local currency and cryptocurrency.
It is worth noting that if your trustees are not aware that an exchange account exists, they cannot access it. So it is imperative for them to be aware of the current exchanges that you use and even the ones that you don’t use but are still open.
Nonetheless, if you use a decentralised exchange, which is oftentimes more recommendable, you would need to know the procedure for the wallets.
For the heirs, if you hold your own keys, there are two things you must know:
- Names of the wallets you use
- Location of the wallet backups
Also, it would help for your heirs to know the devices used to access the bitcoins of the deceased and the wallet locations. It’s most important to explain (to them) the kinds of assets, key locations, and access controls you’re using for security. Access controls are things like PINs, passphrases, multisignature or timelock requirements.
What to do when heirs are in conflict
If the keys for multisignature wallets are held by family members who don’t get along, what are the best things to do to overcome these difficulties?
- Smart contracts using bitcoin is a good idea. It pays to ensure that cryptocurrency in wills is integrated into your tech solution. However, if such is the case that the rightful heirs/families do not get along, a TTP (trusted third party) may be your best bet.
- A TTP acts as a mediator for both parties who are in conflict but in the same light, they trust the third party to act in their interest. In most cases, a CA (Certificate Authority) issues a digital identity certificate to one of the parties. The CA, who undertakes the notary function, then becomes the TTP.
- However, not everyone is too keen on giving that responsibility to one family member only as it can show risks of having the power over the family, you as the bitcoin owner may consider the ‘dead man’s switch’. This can provide an incentive to someone to prevent you from accessing the internet or to hold you off from accessing your ‘smart lock’.
Strategies to secure the bitcoins of the deceased
- Nothing still beats the old-fashioned pen and paper method. It would also help to produce two copies of every record and keep them in different places. Antonopoulos reckons that it is best to write it down as paper will last for hundreds of years. Laminate it if you must and buy a fireproof safe to cover you from theft, flood, and fire. Put it in a drawer or your vault then lock it. This is, for him, the best way to control your cryptocurrency.
- While it seems like it’s a great idea to save everything on a USB drive, you may want to think again as drives sometimes fail and not function on other operating systems.
- Likewise, saving it online may not be the best solution either as it is prone to hacking – but saving it on your device might be a probable solution. If you really need to put your bitcoin on your device, the most secure one will be your smartphone. To secure your assets, you may find these recommended hardware wallets useful – Trezor, Ledger, or KeepKey.
- Software wallets are a great alternative when you can’t buy a hardware wallet. Just download the software onto your smartphone and you’re good to go.