Every bitcoin estate plan must include a simple, easy-to-understand letter of instruction to your heirs or executor. If you don’t, all of your hard-hoarded bitcoin may disappear.
Explain Bitcoin to a Child
Keep it super simple! Write the letter like you are explaining bitcoin to a child. Do not give the whole history of bitcoin, block chain, sound money, etc. Just write enough to get them past this treacherous stage: handling new and complex assets while grieving.
In your letter, write about:
- High-level concepts;
- Major pitfalls to avoid when working with cryptocurrency; and
- Immediate to-dos or checklist.
Bitcoin vs Banks
Most of your heirs understand banks and brokerage accounts. So, explain how bitcoin is different. Explain that cryptocurrency can be lost forever if handled wrong, unlike dealing with a bank. There is no password recovery.
If your heir is a little more financially savvy, explain that bitcoin is like a bearer instrument. Bearer instruments are certificates where whoever holds them owns the money. (Cash is essentially a bearer instrument). When you give someone your bitcoin keys, that person has complete no-consequence access to your funds. No one will check their ID or verify their signature.
Where You Store Your Bitcoin
In your instruction letter, explain where you store your bitcoin keys. You should have a rough inventory of what you’re holding so your heirs know what to look for. Most bitcoiners have a little bit on an exchange (Coinbase, Binance, Gemini, etc.). You may also have some hot wallets online (apps, browser extensions, etc.). Lastly you may have cold wallets, which are not connected to the internet at all (hardware or paper certificate).
It is important that your instructions are in a letter, not in your will. Your holdings could change, and you won’t want to update your will for every change.
Next, explain how the heirs can access the items on your inventory.
Exchanges are simple to explain, because they are more similar to banks than anything else. You heirs will send the death certificate and letters from the court and the exchange will turn over possession to the heirs.
Wallets are a little different. A good solution for a hardware wallet is to give a clone wallet to an executor or heir and give the PIN to someone else. Or you can split up a seed phrase and pass phrase among different heirs and they must collaborate to access your bitcoin.
Bitcoin letter of instruction example
If you’re reading this, I’m either dead or incapacitated. If I’m not dead or incapacitated, PLEASE STOP READING NOW.
This letter is about my Bitcoin and other cryptocurrency, and how to access them. I won’t even try to explain everything about Bitcoin here, but I want you to know enough to not get robbed or lose everything.
Some important high-level concepts:
(1) Cryptocurrencies can be lost, forever! There’s no FDIC, or bank customer support to stop payment or reverse a bad transaction. Once it’s gone, it’s gone.
(2) There’s no password reset or “recover lost password.” If you lose the passwords (known as seed phrases, I’ll explain below), Bitcoin and other cryptocurrencies are gone forever.
(3) Bitcoin and other cryptocurrencies are “bearer” assets, like cash. Whoever holds it, owns it. So if you hand someone the seed phrases, it’s like handing them an untraceable bag of cash.
Nervous enough? No worries, Just follow these instructions, and you should be fine.
I hold some Bitcoin and other cryptocurrencies on the following exchanges:
This is the easy part: just ask my executor or probate lawyer to contact the exchange with an original death certificate and letters testamentary, and they’ll give further instructions on how to transfer my Bitcoin and other cryptocurrencies.
Now it gets harder.
On Hardware Wallets
I also hold some Bitcoin and other cryptocurrencies on hardware wallets. What’s a hardware wallet? It looks like a large USB thumb drive, and my passwords/seed phrases are securely stored inside the device. You need my PIN code to access my hardware wallet.
My hardware wallet (and duplicate copies) are located:
– Describe locations
You should automatically receive an email with the PIN within six months of my death (I set up a “Dead Man’s Switch”). Just remember: anyone who has both my hardware wallet and PIN has full, irreversible access to the Bitcoin and other cryptocurrencies inside.
If you cannot find or access any of the hardware wallets, you can still recover my Bitcoin and other cryptocurrencies using my “seed phrase.” This string of 24 ordered words is the secret password to control the funds, even without the hardware wallet device.
I’ve given the first 12 words to these trusted people: Bart, Lisa, and Maggie
And the second 12 words to: Moe, Larry, and Curly
Contact whoever you need to complete the 24 word seed phrase. And remember: whoever has the full 24 word phrase has full, irreversible access to the Bitcoin and other cryptocurrencies inside.That’s it.You probably won’t be able to navigate all this without some help.But at least you now know how to find and protect the hardware device and seed phrases while you figure out the rest.
Also, consider choosing an executor who understands bitcoin and cryptocurrency custody. You can learn more about hiring a professional executor in my book, “How to Choose Your Executor”