E283 5 Stages of Probating Bitcoin

E283 5 Stages of Probating Bitcoin


Probating bitcoin is more complicated than usual probate. We’ve discussed the 3 stages of probate generally. Here, we’ll describe some specifics of the process for when the decedent owned bitcoin.

How to find out if deceased had bitcoin

How to find out if deceased had bitcoin

First, did the decedent even own bitcoin? We previously discussed three steps to take to find out if the decedent owned bitcoin.

To recap:

  1. Check for hardware wallets, which are little devices that look like a USB drive, calculator, or small smartphone.
  2. Check the decedent’s phone and computers for software or soft wallets. If you have no idea what those apps are named, just do a Google search for the most popular software wallets. New programs and apps come out all the time.
  3. Look for instances of 12 or 24 words. You could find these on a piece of paper, etched into metal plates, or anything else you come across that may be a seed phrase to the decedent’s wallet.

Get letters testamentary for bitcoin

Get letters testamentary for bitcoin

Once you determine that the decedent owned bitcoin, you need to get letters testamentary.

Is this practically necessary?

Do you really need letters testamentary for someone who had self-custody (held in a private wallet and not on an exchange). Probably not, unless bitcoin is held in exchange. If the decedent held the bitcoin privately, there is no gatekeeper to get past. Once you have the decedent’s key or PIN, you have possession of the bitcoin.

Is this legally necessary? Absolutely.

Say you walk into the decedent’s house, find cash, pick it up and walk out. Sure, practically, you can do that. But it doesn’t mean you should! Taking possession of the bitcoin without letters testamentary is no different taking personal property, cash, or jewels from the estate without proper authority.

Take custody of the deceased’s bitcoin

Take custody of the deceased’s bitcoin

Now that you confirmed the decedent owned bitcoin and you have letters testamentary, how do you take custody of the decedent’s bitcoin? Generally, you want to move it out of the decedent’s wallet into a new wallet for the purposes of the probate process.

If the bitcoin was held on an exchange, submit paperwork (death certificate, letters testamentary, claim forms) to authorize the withdrawal. This is similar to the process involving a brokerage account.

If the bitcoin was held in self-custody (ex. a hardware or software wallet), make sure you have all necessary device(s), seed words, pins to access the wallet. I recommend moving it into a new wallet for probate. For the executor who knows how to cover their own tail, I recommend moving the bitcoin to a 2-of-3 multisig with a reputable custody service (Casa, Unchained, etc.). The reasons are that the custody service will hold a third key; in case the executor dies during probate, and to minimize risk of the executor being held personally liable for losing keys/custody. There is more of a chance of someone losing the information than there is for other disasters. As an executor, you don’t want to put yourself in that position. There’s no perfect solution, but the 2-of-3 multisig creates levels of redundancies and backups.

Sound complicated? It is! And it’s exactly why you should consider naming a professional bitcoin executor.

Should executor sell or hold bitcoin?

Now that the executor has possession of the bitcoin, should the executor sell or hold during the pendency of probate? This is the toughest question.

With stocks and other volatile assets, the general rule is to sell and liquidate. Why? Because executor’s job is to preserve value, not grow the estate. Executors will only get blamed if the price goes down; there’s no reward or upside if the estate goes up.

BUT, some bitcoiners are pretty hardcore and may direct that they don’t want the bitcoin liquidated into dollars. If decedent or the heirs really want to keep the bitcoin holding, the executor should prepare paperwork to document that the consequences are not his fault. Holding the bitcoin poses pretty considerable risk for the executor, so most won’t do it. Again, if this is important to you, consider hiring a professional bitcoin executor! You need someone willing and comfortable bearing the risk under the right circumstances.

Even if the decedent tries to spell it out in the will, the executor may not be comfortable taking the risk of holding the bitcoin. If this is the case, it may be beneficial to find and name a professional bitcoin executor in your will.

Close an estate with bitcoin

Close an estate with bitcoin

Many folks think once the executor collects the assets/bitcoin, they can turn around and immediately relay it to the heirs. NO, the distribution of the estate does not occur immediately after the executor gets his hands on the hardware wallet. The executor must wait for all debts, expenses, and taxes to come in and pay those first.

Only after all those final debts and expenses are cleared can executor safely distribute bitcoin. If an executor pays out the bitcoin before he settles taxes and debts, and then receives a tax bill, he’s going to have problems. The executor either has to ask heirs for money back, or he will have to pay out of his own personal funds.

It’s best to wait until you have receipt and release from the IRS and letters from creditors stating that they have been paid in full. You don’t want to be in the position where you ask the heirs for money back to pay debts. They probably won’t give the money to you anyway.

We’ve tried to apply much of our probate knowledge to bitcoin situations. Let us know if you find this useful. Also check out my book, “How Probate Works,” to understand how probate works in general. Then, add to that all the complexities of probating an estate with bitcoin!

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E278 How to Probate a Bitcoin Miner’s Estate

E278 How to Probate a Bitcoin Miner’s Estate


How do you probate a Bitcoin miner’s estate? We’ll cover: what a miner looks like, whether to keep the miner running through probate, and how miners will probably have yet another wallet to figure out.

The Bitcoin mining machine

The word “miner” can apply to the individual who engages in active mining or to the device itself. Confusing, right
Did the decedent own a miner? A miner is a supercomputer dedicated to solving complex math problems to earn Bitcoin. The process of solving those math problems is what makes the Bitcoin network secure.
The bitcoin mining machine
This machine is not an ordinary laptop or PC. The miner itself looks like a prehistoric computer or heater, and often worth at least $10,000! Executors – make sure you Google what it looks like! You don’t want to accidentally throw away Uncle Bob’s “large old computer…” It could also be mistaken for a space heater, because it actually does throw off a lot of heat.
Keep in mind that the decedent could own a hosted miner. Because the machines are huge, hot, and noisy, people may not want to keep them in the house. Instead, there are miner “farms” that handle the cooling, electricity, and noise reduction. This allows shelves upon shelves of miners to be in one place and under the right conditions. A decedent may own a machine at a hosted facility and pay rent for the facility to provide those solutions.

Running a Bitcoin miner throughout probate

Running a bitcoin miner throughout probate
Should the executor continue running the Bitcoin miner throughout the probate process? As we know, probate can take a long time. Running miners for a year or more could generate significant income. You need to do a cost-benefit analysis. Do you unplug the miner and sell it or keep it running?
Just like any other operating business, don’t over–think it. Does the executor have the capability to keep running the miner, or is it better to sell it immediately? For example, an executor is not equipped to continue running a retail store for an estate, so it’s better to sell quickly. But an executor could maintain a rental property until ready to sell.
So, if you have a hosted miner, it may be easy enough to pay the miner farm rent to keep it running. But, if the machine is in the decedent’s home, you probably don’t want it there while you are preparing to sell the home.
 
Some factors to take into account are:
  1. Electricity cost vs. revenue. It takes a lot of power to run the machine. If you are spending a lot of money on electricity and the current price of Bitcoin doesn’t justify it, the executor may want to sell.
  2. Risks: If one of these machines blows out in the home, it could cause problems. If the machine itself is worth $10,000 and it blows out, then the heirs lose that money.

Another Bitcoin wallet

Another bitcoin wallet
We’ve talked about wallets that executors may miss (https://anthonyspark.com/e270-3-Bitcoin-wallets-executors-overlook/), and miners may have another one! The miner’s earnings usually have to go through a “pool” before it gets to the wallet.
It’s hard to win the calculation contest at home on your own little device, so many people join pools where miners combine their computer power and divide up the earnings. Because of that multi-layered setup, you may need to find yet another seed phrase for another wallet.
 
Hopefully this is a good overlap of probate experience with bitcoin miner knowledge. My book, “How Probate Works,” will show you how probate works in general. I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your situation.
 
As always, if you have questions about Bitcoin and probate, let us know!

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E274 How Will Your Executor Handle a Bitcoin Crash

E274 How Will Your Executor Handle a Bitcoin Crash?


How will your executor handle a Bitcoin winter (or crash) like the one we’re living through now? We’ll compare a few likely scenarios depending on who you’ve chosen as your executor.

But first, a few assumptions:

  1. You’re a “maxi” (a Bitcoin maximalist – someone who really values Bitcoin in and of itself, and not just its conversion to dollars);
  2. You want your heirs to inherit the actual Bitcoin you’ve accumulated, not just the fiat dollar value on your date of death; and
  3. You believe Bitcoin’s value in dollars will probably be very volatile for several more years. You understand that even if it’s “down” during your probate, you want your executor to hang on to it.

So here are a few scenarios:

Professional executor, but doesn’t “get” Bitcoin

Professional executor, but doesn’t “get” bitcoin

There are many attorneys and banks who are savvy in executorship and probate. In fact, banks have whole departments with trust officers that handle this. Once you find these experienced folks, do they have knowledge of Bitcoin? Maybe, but they probably have knowledge of crypto in general.

Bitcoin maximalists consider themselves separate from the rest of the crypto universe. If your professional executor has only a light understanding of crypto in general, they will associate Bitcoin with the current crypto crash. During a crash, can they withstand psychological pressure to sell? Probably not. That’s the most likely outcome with a professional executor that doesn’t understand Bitcoin like you do.

Maxi amateur executor

Maxi amature executor

Say you chose your buddy who is a fellow maxi but has never been an executor before. He probably has similar values as you and wants to hold on for dear life (“HODL”). But, he has very little knowledge of the probate process or experience being executor.

If Bitcoin is going through a winter cycle during probate, the heirs may demand that he sell the Bitcoin so they can get their inheritance in cash. Can this amateur executor withstand threats of lawsuits, accusations of breach of fiduciary duty, and sob stories from heirs? Between dealing with that and also trying to HODL, it’s going to be a lot of pressure. If the executor doesn’t understand how to defend himself, he might be convicted enough to protect his own stack of Bitcoin. But he might give in to pressure from the heirs and sell their UTXOs so they leave him alone.

Understandably, you want your executor to be experienced with Bitcoin, but you also have to weigh whether the executor can withstand the pressure.

Professional Bitcoin Executor

Professional Bitcoin Executor

Your best bet is to find a professional Bitcoin executor. Investor Michael Burry, from the movie and book Big Short, ran a fund holding money for other people. He shorted the real estate market right before the crash of 2008.

While the real estate market was doing well right before the crash, his positions were losing a ton of money. His investors wanted their money back and threatened to sue him. Burry kept saying no and told them to trust him. He even took technical steps to keep the investors’ money in place to prevent investors from withdrawing.

In the end, the recession happened, and all of those shorts exploded, allowing his investors to make 400 times their money. At the end of the movie, Burry sends out a one-liner email: “You’re welcome.”

In our estate scenarios of a Bitcoin winter, you need someone like Burry who is both convicted AND knowledgeable. You need someone who can carry out your wishes and do a probate-version of a side pocket to make sure he withstands the pressure and delivers the Bitcoin to your heirs.

I hope to fill a similar role, and hope others will, too. I have the experience as a professional executor, and I am beginning to see the light of Bitcoin values. While this topic is very specific, you can still learn about hiring a professional executor in my book, “How to Hire an Executor.”

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E266 Bitcoin Taxes During Probate

E266 Bitcoin Taxes During Probate


After someone dies with Bitcoin, among all the other chaos, are questions about taxes. How do you pay capital gains from during the decedent’s life? Or if he was a long-term holder, how much capital gains tax will the heirs owe? What about estate tax?

Final year capital gains tax from trading

If decedent was not a true holder, and was buying/selling, there are probably realized gains. You have to sell something to owe capital gains tax.

Final year capital gains tax from trading

But how does an executor sort through to find the basis, the sales prices? It’s still complicated, because at least for now, cryptocurrency is not a well-established industry and is constantly evolving.

First, check the decedent’s devices for apps that track basis. There isn’t a main app out there right now, so Google “cryptocurrency tax tracking” to see which apps are popular at the time. If you find an app, it’s somewhat good news. The downside is that some of these apps don’t work very well.

Next, check the exchange that the decedent was using (Coinbase, Kraken, Gemini, etc.) Some of the exchange platforms do basis tracking, but again it’s not that good yet. Even traditional stock exchanges don’t always track the basis. So, it’s a bit unrealistic to expect the crypto exchanges to do as good a job of tracking basis. When someone is alive, it’s easier for them to track their own basis. But, like any other estate, things become a bit messier when you’re doing it for someone who has passed away. It takes work to reconstruct the portfolio to find the values.

What happens if you don’t find the basis? You can’t wait around forever; at some point the executor must take a position on the basis. Then the executor files the 5495 with the final 1040, holds his breath and waits to see what the IRS says. Obviously, this is what the executor does after LOTS of legwork to come up with the best guess for the basis. Filing with the IRS should not be the first step, and you should have a very strong argument supporting your guess.

Long-term Bitcoin gets stepped-up basis

Long-term bitcoin gets stepped-up basis

Like all other capital-appreciated assets (homes, stock, etc.), Bitcoin will get stepped-up basis.

As a quick review, the basis is your adjusted purchase price. If you bought a house twenty years ago, your purchase price is your basis. Same with stock. If you bought stock for $50 a share ten years ago and now it’s worth $500 a share, you made a ten-fold increase.

Capital gains are calculated by what the asset is worth now (when you sell) vs. what you paid for it (when you bought it). When a person passes away, there is a very rare freebie from the IRS called the “stepped-up basis.” If you bought Bitcoin for $1 and it’s currently trading at $100,001, your gain is $100,000. You’d owe a lot of tax on that. But, if you pass away and your heirs get it, their stepped-up basis becomes $100,001. If the heirs sell it the next day for $100,002, their capital gain is $1.

Long-term Bitcoin holders may have SIGNIFICANT gains, so passing it on to the heirs could be a huge tax benefit.

Estate tax on Bitcoin

Is there estate tax on Bitcoin? Yes, it is an asset, just like anything else. Estate tax is a tax of your net worth upon your passing. Your executor or heirs need to put together a balance sheet or list of all your assets, minus liabilities, and present it to the IRS.

Estate tax on bitcoin

The good news! Most people do not need to worry about estate tax because, currently in 2022, the tax only applies to estates over $12mm (and $24mm married).

However, there are probably some Bitcoin holders that are very close to being over the exclusion amount. Earlier, we discussed the stepped-up basis to avoid the capital gains tax. But, if your gains have gone up so much that you’ve shot past the estate tax threshold, you’re trading capital gains tax for estate tax. If your estate is worth that much, you should consult with an attorney or an accountant.

This topic was based on a question from one of our listeners. Thank you and please keep the questions coming!

If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your situation.

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E262 3 Bad Bitcoin Inheritance Plans

E262 3 Bad Bitcoin Inheritance Plans


Let’s talk about 3 common suggestions that are bad bitcoin inheritance plans. Why so negative? Why talk about bad bitcoin inheritance plans, rather than the good? Well, sometimes the process of elimination can help focus our thoughts, so we better understand what makes the good plans “good.”

Sharing you private keys

Share you private keys

This is just terrible security while you’re living. Why? Because sharing your private keys with someone gives them immediate, irreversible, and unfettered access to your bitcoin hoard.

“But I trust my spouse (or kids, or best friend,” you say. I’m sure you do at this moment. But we’ve all seen thing change faster than you realize.

Maybe a great marriage suddenly veers to divorce. Or who would suspect their own child so controlled by drug addiction would poison them to get their Bitcoin?

And it doesn’t need to be so dramatic, just basic carelessness. Will your loving spouse, child, or best friend know how to keep your private keys as safe as you would? Will they get fished, or simply lose their keys?

And if they do have sole and unhacked possession of your private keys when you die, will they know what do you? Or upon your death, will they be relying guidance from a “trusted third party” to understand how to probate your bitcoin?

“Just” educate your heirs

“Just” educate your heirs

For many, their plan is to “just educate” their heirs so that heir will know what do when you die.

Um, do you remember how long it took for you to accumulate your current bitcoin knowledge? How many mistakes did you make? How many BIG mistakes did you make?

Now imagine your heirs are grieving, stressed, and have a lot to do during probate. And on top of that they’re supposed to navigate transferring self-custody? It’s just unrealistic

Even if, by some miracle, you cram their heads full of update to self-custody knowledge today, will they stay up to date? Do they want the knowledge enough to stay apprised of protocol updates, multsig best practices, current use of QR codes or air-gapping? Or will their knowledge be obsolete by the time you pass?

Treasure maps

Treasure maps

You think you’re writing a simple letter of instruction, but to your heirs it’ll feel more like a treasure map.

Why? Remember, your herirs will be grieving, stressed, and have a lot to do during probate. And no matter how much you “educate” them, it’s unlikely they will know know what to do upon death, and will have to rely on “trusted” third party.

And these letters/maps go out of date faster than you think, Do you really want to spend your life constantly updating your letter of instruction? By the way, this problem is the same for any will or trust, not just Bitcoin Inheritance letters of instruction.

If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your situation.

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E258 Bitcoin Estate Planning for 2 of 3 Multisig

E258 Bitcoin Estate Planning for 2 of 3 Multisig


As the default recommended multisig quorum, there must be lots of  2 of 3 multisig holders out there. So let’s make sure your 2 of 3 multisig also works as well upon your death as it does while you’re alive.

Three things to think about: who has your third key; access to keys 1 and 2 upon death; and consider a 2 of 4 multisig.

Who has your third key?

Who has your third key?

Your best candidates are a custody service, a professional executor or lawyer (who also understands bitcoin custody and opsec), or family and friends.

Ideally, this keyholder will have an ongoing understanding of both bitcoin custody and security, as well as probate and estates. This means someone will keep up to date as technology and best practices evolve, and not just a fleeting understanding.

We discussed in depth “who should hold keys as part of your bitcoin inheritance plan?” in E256.

Access to keys 1 or 2 upon death

Access to keys 1 or 2 upon death

Presumably, while you’re alive you have sole access to keys 1 and 2. So how will your 3rd keyholder get access to one of your keys upon your death?

One of the benefits of multisig is that you don’t need such extreme security measures. Why? Because even someone gets one of your keys, they’d still need to get another key to be able to access your bitcoin.

So how to make sure a second keys is available upon your death? A few ideas:

  1. Share a full seed phrase with a family or friend, who would share with your 3rd keyholder upon your death
  2. Give a hardware wallet clone to family/friend, who would share with your 3rd keyholder upon your death
  3. Store a copy of your seed phrase or a hardware wallet clone in a safe deposit box
  4. Write a full seed phrase in your will/trust

All of these brainstorm ideas trade some security to increase the chances your estate will actually be able to access your bitcoin upon your death.

Consider 2 of 4 (or more) multisig

Consider 2 of 4 (or more)

2 of 3 multisig means your 3rd keyholder must somehow get access to keys 1 or 2 (your keys) upon your death.

In our experience, too many things go wrong and go missing upon death. And not just bitcoin. Far less esoteric things like bank accounts, atm cards, birth certificates get lost in the shuffle and chaos of probate

For that reason, I’d prefer to have a quorum of keys ready immediately upon death. For example, a custody service such as Unchained Capital or Casa has key 3, and a professional bitcoin executor (me) has key 4.

I prefer this setup because keys 3 and 4 are immediately ready, and we can still fall back onto keys 1 or 2 as backups for redundancy.

What are the drawbacks of 2 of 4 versus 2 of 3?

  1. Setting up is a bit more complicated
  2. While alive, validating receive addresses may be more complicated
  3. And non-2 of 3 multsigs currently standout on the blockchain, and are therefore less private. But Taproot should solve this.

If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your Bitcoin situation.

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E256 Multisig Keys for Bitcoin Inheritance Planning

E256 Multisig Keys for Bitcoin Inheritance Planning


If you have a multisig, who should hold keys as part of your bitcoin inheritance plan?

Multisig is a great way to reduce risk of theft or catastrophic loss by reducing single points of failure. Michael Flaxman does a nice job explaining why to use multisig.

But what happens upon your death? You’ll want one (or more) of your keys held by someone other than you. Let’s review some good options for who.

Bitcoin custody service

Bitcoin custody service

Nowadays there are several businesses to fill this void, led by Unchained Capital and Casa.

Some advantages of hiring a pro keyholder:

  1. Expertise. These guys appear to know what they’re doing.  So you won’t have to worry much about them losing their keys, maintaining good opsec, or generally keeping up to date.
  2. Immortality (sort of). Even if the founder or your main point of contact dies, the business itself will carry on and be there after your death (unless they go out of business, of course)
  3. Handholding for your heirs. Both Casa and Unchained offer services to guide an executor or heir who is completely clueless about seed phrases, multisig, etc. So not only are they one of your

And a few disadvantages:

  1. New. Custody services, collaborative custody, whatever they’re called, it’s all very new. So it’s hard to predict if they’ll stick around, change their focus, or what business standards they’ll adhere to. Only time can tell
  2. No probate expertise. While these guys are clearly experts in custody and security, they don’t have experience with probate and executor issues. No shame there, even most “estate planners” and financials advisors don’t really understand probate, either.
  3. Cost. Yup, they’re in business, so they charge fees (varies depending on the package and services you need). Unchained has a 2 of 3 service where there’s no fee now, only a $25 fee if/when you need them to sign a transaction.

Bitcoin executor

Bitcoin executor

Just like with estate planning in general, it’s good to have a great executor to run your estate upon your death.

Some pros of having a professional executor hold one of your multisig keys:

  1. Probate expertise. A professional executor will know all the ins and outs of probate, the courts, and tax issues.
  2. Highly regulated. For better or worse, a professional executor (usually an attorney or bank) is bound to all sorts of ethics rules, fiduciary duties, or banking regulations. So at least you know he has plenty of guide rails. And if anything goes sideways, your heirs will have well-established procedures for remedies against him.

What are the cons or having a professional executor hold one of your multisig keys?

  1. Try finding one. According to our clients, it’s very hard to find a good professional executor. Bank have high net worth minimums, and even then have interviews and committees to decide if they want your estate. And apparently they’re aren’t many reputable individual/attorney professional executors out there.
  2. AND knows custody. So it’s hard enough to find a good executor. Now compound that by finding one who’s at least a little experienced with bitcoin. Else you’ve just added a new risk vector, some dude who’ll lose his keys, get phished, and let his hardware wallet firmware stagnate un-updated.

Family or friends

 

A trusted family or friend sounds ideal, right? Someone you already know and trust. If you have shared interests, they Family or friendsmay already be down the bitcoin rabbit hole with you. Heck, they may even be an heir.

The possible downside is that they simply don’t want the burden of being an executor (of sorts). Probating and settling an estate can be a long, time-consuming, and headache-inducing slog, So even if your family or friend has the expertise to handle the custody of your multisig key, they may not want that burden of responsibility.

If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your Bitcoin situation.

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E253 3 Steps When a Bitcoin Owner Dies

E253 3 Steps When a Bitcoin Owner Dies


What do you do if someone dies owning Bitcoin, but you have NO IDEA how Bitcoin works? How do you recover the Bitcoin, so it doesn’t get lost forever? Right now, Bitcoin is delicately owned, meaning the tools of ownership are still being ironed out. It’s still very easy to have an accidental catastrophic loss.

Here are the basic steps to find the keys to the decedent’s Bitcoin.

Note that the steps below assume that the decedent’s Bitcoin is not on exchange, since the claim process for an exchange is very similar to traditional bank or brokerage. As exchange is a platform like CoinBase or Gemeni, where you have an account with that entity. Most hard-core bitcoiners have a personal custodied hardware wallet instead. Here, we are talking about those bitcoiners.

1. Look for hardware wallets

Look for hardware wallets

Looking for a wallet is the first and easiest step, because it’s something physical to look for. A hardware wallet may look like a USB drive, a type of smartphone, or a pocket calculator. Not sure what you’re looking at? Open Google images and search for “hardware wallet.”

If you find a hardware wallet, you probably need a PIN code to unlock the device. If you can’t figure out the PIN, at least you know the decedent owned a hardware wallet. If you can’t figure out the PIN, make sure to try step 3 below (word lists).

If you have the PIN, congrats. You’re able to unlock the device to access the decedent’s Bitcoin keys stored inside. (Note – the Bitcoin is not actually on the device. The device is a key to the Bitcoin). You can now use the hardware wallet to access, sell, or transfer the decedent’s Bitcoin. So, be sure to treat the PIN and device very securely.

2. Check phone and computer for software wallets

Check phone and computer for software wallets

You might want to scroll through the decedent’s phone to see what apps the decedent had. Google “top software wallet iPhone” or “best software wallet android” or “mac software wallet” to get an idea which apps to look for.

Again, the software wallet may be password protected. If you can’t guess or find the password, at least you know the decedent has a software wallet. You can use step 3 for word lists (below).

If you have the PIN, congrats. You’re able to unlock the device to access the decedent’s bitcoin keys stored inside. You can now use the hardware wallet to access, sell, or transfer the decedent’s Bitcoin.

Keep this device in a safe place! Anyone who has control over the decedent’s phone has the power to access, sell, or transfer the decedent’s Bitcoin. So, be sure to treat the PIN and device very securely. Also, be sure that you remember the PIN, because the device can lock you out for a period of time after too many failed attempts.

3. Look for 12- or 24-word lists

Look for 12 or 24 word lists

If you found a hardware or software wallet, but you can’t figure out the PIN or password, it’s still possible to access the decedent’s Bitcoin.

The hardware wallet or apps are really just wrappers, ways to conveniently hold the Bitcoin keys, but are not the keys in and of themselves.

Another format for decedent’s Bitcoin keys is a list of 12 or 24 secret words in a specific order (aka “seed phrase”). If you (or anyone else) has these words, you can use them to create a new hardware or software wallet, and therefore have full control to access, sell, or transfer the decedent’s Bitcoin.

You’ll be looking for a card, note, or letter with the seed phrase on it. So, if you find the 12 or 24 words, do NOT:

    1. Share them with anyone;
    2. Copy/paste them onto your phone or computer; or even
    3. Take a picture of them.

Just keep the paper secure until you can safely transfer the Bitcoin to a new account.

It’s also important to mention that even though you trust your lawyer, you shouldn’t share the passwords with him or her. Just let the lawyer know that you are in possession of what you believe is the hardware/software wallet and password.

Hopefully this gives you some insight for what to do and look for when dealing with a decedent’s Bitcoin. These questions and issues will become more common as more people start owning Bitcoin, but for now, most people are not sure how it works.

If you want to learn more about how a professional executor can help , check out my book, “How to Hire an Executor,” available on Amazon. I don’t have a Bitcoin chapter yet, but you’ll get a sense of how choosing a professional can make things easier, especially for something complicated like an estate that includes Bitcoin.

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E250 What Does Taproot Mean for Bitcoin Estate Planning

E250 What Does Taproot Mean for Bitcoin Estate Planning?


Jimmy Song recently published a great article about what the Taproot upgrade could be for Bitcoin estate planning (video here). Taproot is the recent upgrade to the Bitcoin protocol, and we’ll do our best to outline Jimmy’s article in layman’s and through the lens of an experienced executor.

What are scriptspends?

What are scriptspends

Taproot has added programmable spend instructions called scriptspends. As Jimmy writes, “Taproot essentially allows you to have as many alternative conditions for unlocking your Bitcoins as you want, making the addition of recovery options to be easy.”

In past blogs, we’ve discussed other solutions like an emailed dead man’s switch and sharding your phrase into several pieces. This upgrade potentially does away with all of that while using more elegant solutions.

Cryptocurrency tools keep evolving for the better, and we can’t wait to see ideas get developed.

Potential recovery options with Taproot

1. Mutlisig

With Taproot, you can “recover your UTXOs with a 2-of-5 multisig of 5 friends that don’t know each other.”

I am not sure how this is different from existing multisig solutions. Perhaps Taproot just makes it easier to implement a multisig? If you can enlighten me, please send me an email or comment.

2. 1-year time lock

Potential recovery options with Taproot

You can “recover your UTXOs after a time lock of 1 year and locked to a key belonging to a known service like Unchained or Casa.”

This seems to be a type of “unclaimed funds” mechanism, where after a year of inactivity, access switches to a key held by a third party. As long as you access this Bitcoin once a year to show that it is an active account, nothing happens. But inactivity after 1 year authorizes the scriptspend to automatically give a third-party a key to access. Perhaps this should be a default setting for new wallets.

Just like searching for unclaimed bank accounts after someone has died, this recovery option gives someone a way to recover, rather than being lost forever.

3. Degrading multisig

Jimmy writes that you can ”recover using a gracefully degrading multisig of 3 of your family members where 3-of-3 is for immediate recovery, 2-of-3 after 6 months and 1-of-3 after a year.”

For example, after 6 months of inactivity you would need 3 keys to spend.  But after an another 6 months, sort of assuming you don’t have access to 3 keys, your multisig requirement would reduce to just 2 keys. And eventually to just 1 key. Again, in the name of avoiding catestrophic loss.

This is all to make up for the fact that Bitcoin is not like a regular bank. If you lose your password, there is no password recovery. You need multiple contingency plans, otherwise, it’s gone. You’re probably more likely to lose your password than to be hacked!

With scriptsprend, these options seem to be only limited by imagination of programmer. That’s very encouraging.

Private recovery options

Private recovery options

Jimmy notes that “you only have to reveal the recovery method when you spend using it, so your friends don’t even have to know that they’re part of your backup plan! You just have to present them with what needs to be signed.”

So, if you name 3 people as your multisig members, they don’t have to know that they are back-up signors to a transaction. Similarly, you don’t have to tell someone that they are your executor; they can discover that upon reading your will.

The problem with this approach is that it assumes everyone knows how to (or is familiar with) use private keys. I’m not so sure this is realistic; we’re just not at that point in time yet. Maybe you have enough tech-saavy signors in your group to meet a quorum. Perhaps you can use Unchained or Casa as a back-up. Or maybe even a Bitcoin-savvy professional executor?

In this stage of development, it’s probably not smart to rely on 3 family members with digital signatures. You’ll need one or more people/companies who are familiar with the technical requirements.

If you want to learn more about how a professional executor can help , check out my book, “How to Hire an Executor,” available on Amazon. I don’t have a Bitcoin chapter yet, but you’ll get a sense of how choosing a professional can make things easier, especially for something complicated like an estate that includes Bitcoin.

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E248 Your Bitcoin Estate Planning New Year Resolutions 2022

E248 Your Bitcoin Estate Planning New Year Resolutions 2022


If you hold bitcoin, 2022 may be the time to make your New Year resolutions to get your Bitcoin estate planning in order.

Everyone approaches crypto differently: Entry level people will probably be on exchanges; more intermediary users may have their own software or hardware wallets. Hardcore bitcoiners probably have hardware wallets, cold storage and maybe even paper wallets – most likely in a multisig structure.

Have you named beneficiary designations?

Have you named beneficiary designations

Newer bitcoiners most likely hold their crypto on exchanges (Kraken, Binance, Coinbase, etc.). The most important question is: does your exchange allow beneficiary designations? This means filling out a form which says that, upon your death, your account should go to a certain person. (This is similar to naming a beneficiary on your IRA or life insurance). Some exchanges appear to be slowly adopting beneficiary designations. Having a beneficiary is a great way to make sure that someone knows that you own crypto!

If beneficiary designations are allowed, are yours up to date? Does it reflect your current wishes, or is it still in the name of your girlfriend from ten years ago? This would not make your current spouse very happy; believe me – we’ve seen it before! No need to leave those emotional messes for your grieving family.

It’s very important to make sure your beneficiary designations are up to date on all accounts, not just your crypto.

Check your letter of instruction and devices

Check your letter of instruction and devices

Intermediate bitcoiners usually have multiple accounts and hardware wallets/devices. These bitcoiners have self-custody, which means they have more control over their bitcoin than if they were using an exchange.

If you have self-custody, check whether you have a basic letter of instruction. This letter tells your heirs/family that you have cryptocurrency, where the accounts are held, and where any wallets are located. If you have software wallet, let your heirs know the name of the software wallet or app. They might think Kraken is just a video game on your phone! Be sure to continually update your letter of instruction because the wallets you have this year may be different from a year ago.

If you haven’t touched your wallets or nodes in a while (which is totally normal for “cold storage”), there is a chance that those versions and firmware are not up to date. The latest security standards may not be in place. Less savvy heirs/family may be stressed about locating and accessing your bitcoin. It will be much harder for them if they find out they have to run updates before they can proceed.

A lot of hardware wallets rely on batteries. Check in every once in a while, to make sure the batteries are able to power up.

Does your multisig still work?

Does your multisig still work?

I am not a hardcore user, so bear with me on this one. Advanced bitcoiners may have a multisig recovery and inheritance plan. That means that there is no single key to access their hoard of bitcoin; there are layers of protection. For example, you will need 2 out of 3 keys, etc. in order to access the account.

As discussed above, make sure you have updated versions of everything and that everything still works. Imagine how hard it is for someone new to crypto to wrap their head around “multisig,” “hardware wallet signature,” etc.

Another important thing to do is make sure all of your signers are alive. For example, you have a 2 of 5 multisig. You have at least 3 of the keys, your spouse has one, and your cousin has another. That way, if anything happens to you, your spouse and cousin can put their keys together with yours and be able to access the account. But, is your cousin still alive and able to perform his duties? Is he still a valid keyholder? Does he still have his key, and does it still work? You can’t just check your own keys; you have to check everyone’s, because otherwise it’s pointless.

Multisig is new to me, so I am not sure how to confirm that a multisig actually works. Do you really need to do an annual test with all the keyholders, or do you assume that their keys work if yours do?

It would be a shame to go through the trouble of setting up a multisig and then for some reason it fails upon your death. I would love to hear from someone more technologically advanced to help answer these questions.

If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your Bitcoin situation.

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