You may be wondering, ‘what happens to my Bitcoin when I die or become incapacitated’?
Short answer, nothing.
Banks and other traditional finance (TradFi) institutions have standard procedures for transferring inherited assets after death.
TradFi makes it easy to access the deceased accounts and transfer assets to the Estate. There are even state-sponsored unclaimed/abandoned fund programs that create a safety net in case there are any issues along the way.
Bitcoin has none of this.
There is no off-switch, support desk or help line available for wallet recovery instructions to transfer crypto to your next of kin.
The Bitcoin Blockchain Network is unaware of your death.
Unlike you and me, Bitcoin does not die.
Inheritance Planning for Digital Assets
This post is NOT legal advice and the content below is meant to help prepare you when having a conversation with a qualified professional licensed to practice in your jurisdiction.
When you die, your Estate names an executor to be appointed by a court and granted legal authority to make decisions about legacy assets during the ~18 month probate process.
The total balance of your assets including bank accounts, real estate, securities, and property (like Bitcoin) minus debt (mortgage, credit, medical bills) is subject to taxation by Uncle Sam.
Bitcoin is classified by the IRS as personal property, like artwork or real estate. It’s an asset with a straightforward tax schedule.
Failing to prepare and dying without providing even the most basic instructions for your heirs is the most Bitcoin Minimalist thing you can do.
- Self-sovereignty is vacated by Probate.
- Privacy is sacrificed via public court records documenting your assets.
- Monetary store of value is debased by taxation.
Setting up a Revocable Trust to transfer Bitcoin is growing in popularity for estate planning due to the privacy controls and tax benefits compared with dying intestate (no will) or transferring your crypto solely through a Last Will and Testament.
An amendable (revocable) legal estate plan with detailed instructions to transfer crypto custody to your heirs is complex, but easier to set up than you think.
Ps – Reach out to us (team@stratus.io) with any questions or to schedule a consult.
How Does My Family Access Bitcoin When I Die?
Even though the blockchain doesn’t care if you die with your keys, your family does.
Future-proofing your Bitcoin inheritance plan requires time and attention to detail.
The identification, recovery, custody and distribution of your crypto assets stored in hot and cold wallets has multiple points of failure which require documentation and instructions.
- Identifying your Bitcoin accounts is the first step the executor takes once they’ve been approved to manage your estate.
A properly formed Bitcoin Estate Plan will contain a list of your online accounts and physical cold storage locations so the Executor knows where to look.
Centralized exchanges, like Coinbase, act as the custodians of your Bitcoin and have dedicated processes in place to grant the estate executor access to your account(s).
- Accessing hot wallets on your mobile device, computer, browser plugin or website may have security restrictions that require the executor or authorized party (AP) to locate and access your:
- Computer (password)
- Email account(s) (username + password)
- Mobile devices (unlock w/ password/passcode)
- 2-Factor Authentication (2FA) app (password)
- Web/Desktop/Mobile App (username + password)
- 12 or 24 word recover seeds and seedphrases
- Cold Storage Device PIN code
- Additional cryptographic signatures (ie – Mult-sig 2 of 3)
- Documentation like death certificate, court letter of appointment naming the executor, power of attorney, state tax inheritance waiver, affidavit of domicile, trustee certification showing successor trustee and letter of authorization (LOA).
Accessing your cold storage self-custodial wallet device may require a PIN, password or the 12-24 word recovery seed.
Hiding your cold wallet and recovery seed is part of self-custody, but you must have a plan to securely disclose this sensitive information to your heirs.
Pro Tip: Your 12-24 word recovery seed can be used to recreate your wallet(s) on ANY device even if the original is lost or defective. Safe transfer of the seed is a critical component of your succession plan to ensure only the authorized parties can access your Bitcoin.
- Once the account(s) have been accessed by the Executor or an AP defined in your Estate Plan, the crypto must be secured. Your Estate plan docs should contain detailed instructions for transferring your stack to a new wallet or to a Centralized Exchange (CEX), like Coinbase or Binance, for liquidation.
Example directives for your crypto estate plan:
- Instructions for securely storing the access methods for each account until the crypto is sold including the recovery seed and optional cold wallet passphrase.
- Guidance for crypto specific physical and digital security to mitigate attack vectors which could expose your private keys like phishing, social engineering, Bitcoin dusting and spyware.
- If you’re worried about spyware, for example, you could instruct the AP to purchase a new computer to create a wallet for receiving Bitcoin and signing transactions.
- Provide instructions for creating or confirming a transaction across different blockchains, sweeping an account balance, or verifying receiving addresses. This may be second nature for you, but you should consider the technical capabilities of your grieving heirs.
- If your beneficiaries are crypto noobs, do you plan to review best practices like UTXO consolidation, key & address rotation, or dollar cost averaging Bitcoin?
The goal is to protect and efficiently transfer your assets without increasing the risk of loss or causing undue stress.
Pro Tip: If you don’t select a trustee with crypto experience, hiring a professional executor for ~1-5% is an option to consider. You’re paying for the peace of mind by offloading liability.
How to Safely Transfer Bitcoin to Your Heirs
Thinking about your death can be unsettling, which is why 89% of crypto owners are worried about what happens to their stack when they die.
15 most popular Bitcoin wallet recovery methods:
- Letter of Instruction
- Exchange Account Recovery
- Custodian (Fidelity)
- Safety Deposit Box
- Shamir Secret Sharing (SS)
- Single-Signature
- Single-Signature + Passphrase
- Multi-sig + Passphrase (Non-Custodial)
- Multi-sig (Non-Custodial) 2 of 3+ signatures
- Timelocking Bitcoin Transactions
- Multi-Sig (3rd party custodial key)
- Duplicate Hardware Wallet Devices
- Deadman Switch
- Custom Solutions
- Digitally Sending Seed
The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) varies state by state and defines how an attorney, fiduciary or executor can access digital assets.
For more information, check out our post covering the Pros and Cons of the 15 ways to transfer Bitcoin when you die.
As the crypto market matures, I anticipate other solutions will emerge like MuSig as a better alternative to custodial Multi-Sig wallet recovery.
Best Practices for Digital Legacy Planning
- Keep It Simple Stupid (KISS) – If your instructions or recovery method is too complicated, you risk losing your Bitcoin. Remember that any instructions should be considered complicated if you’re passing Bitcoin to someone who does not have experience with wallets, transactions or cold storage.
- Education – There’s a lot of information to process. Grieving family members who are inexperienced with crypto may have a difficult time working through your instructions.
Train your next of kin on how to use a cold wallet and create a transfer to an exchange.
Make a list of things not to do with a recover seed like:
- Don’t take a picture.
- Don’t save files on a computer or internet connected device.
- Never provide your seed to anyone over the phone. No one trustworthy will ever ask for this.
- Avoid typing the seed or even saying it out loud.
- Never tell anyone how much Bitcoin you have.
Pro Tip: Set up a small wallet so you can dry run the whole wallet recovery procedure with a trusted party. Education and training are of the utmost importance. At Stratus, we offer a service to train and assist heirs to recover crypto left to them in an estate transfer upon your death. We’ll even help you plan for a disaster or the worst case scenario like the simultaneous death of you and all heirs.
- Consult a Professional – This post is meant to be educational and we’re not providing legal, tax, or financial advice.
There are plenty of qualified advisors to talk you through the basics. Whether or not they have the crypto expertise you need can only be uncovered through doing your due diligence.
Be careful whose advice you buy, but be patient with those who supply it.
- Create an Estate Plan – As you can tell from this article, The online crypto community focusses so much on the technical methods to transfer Bitcoin recovery seeds and account access but there’s very little information on how to integrate this into an estate plan.
It’s imperative to have something legally valid in place to locate your assets/securities with secured instructions.
If you have any questions, please reach out to team@stratus.io
Pro Tip: Setting up a revocable trust has significant advantages over the alternatives for estate planning. Trusts also add a layer of privacy and redundancy to your hot and cold wallet backup recovery plan.
In Summary:
Even though some of us waited longer than others to start stacking, we are still the early adopters as the value of Bitcoin will play out over a long time horizon.
We HODL through market cycles with diamond hands and conviction that Bitcoin adoption is inevitable. Our reward for taking action early is a generational wealth creation thanks to owning an immutable piece of an asset with fixed supply and increasing global demand.
Wealth is not just the number of zeros or commas in your account balance.
Wealth is ensuring your grandchildren will graduate from college without student-loan debt.
Wealth is preservation, even if you’re not around to enjoy it.
The mental and financial cost of NOT having an estate plan to preserve your legacy is 100% avoidable.
It’s tragic when Bitcoin is lost because families can’t access or find the digital estate to distribute their inheritance.
Having at least a basic plan in place for transferring Bitcoin when you die should be a priority if you care about your loved ones.
If all of this sounds like too much, consider NOT transferring your Bitcoin upon death.
Random strangers on the network will appreciate your donation which will reduce the circulating supply.
Indecision is for losers.
Disclaimer: Stratus does NOT provide investment, legal or tax advice. All information in this article is for educational purposes and should not be interpreted as investment, legal or tax advice. The opinions expressed are those of the author for informational purposes and neither Stratus nor the author are liable for any errors, inaccuracies or omissions. Digital assets, such as cryptocurrencies or decentralized finance, present unique risks for investors. For investment, legal, tax, or other financial guidance you should consult your own advisor.