E335 Why a Letter of Instruction for Bitcoin Inheritance Will Fail

E335 Why a Letter of Instruction for Bitcoin Inheritance Will Fail


A letter of instruction will likely fail for your bitcoin inheritance plan and should have only a marginal role in your plan, if any.

Search for “bitcoin inheritance” and you will probably find lots of people advising you to write a letter of instruction for your heirs. We talked about this and even provided a sample letter of instruction. Now, having spent a bit more time delving into different approaches to bitcoin inheritance, we’re de-emphasizing a letter of instruction.

Note: this applies to self-custodied bitcoin, not held through a third-party.

Educate your heirs

Educate your heirs

A letter of instruction is a subcategory the general approach: I’ll just educate my heirs! Some folks set up a fairly complicated bitcoin inheritance plan, but assure themselves, “I’ll make sure to educate my (spouse, son, etc.) on self-custody.”

Like any other educational endeavor, you must have an eager and willing student, or it just won’t stick. You can educate them on self-custody as hard as you want, but unless your heir is self-motivated to learn, it probably won’t work well. They may appear to understand in the short term to appease you, but that “knowledge” will leak out of their heads almost immediately. Think back to when you started your Bitcoin journey: if you weren’t that interested and someone started discussing self-custody and hardware wallets, your eyes probably glazed over.

You could blame the lack of self-motivation to learn on the ever-evolving status of bitcoin, but this is not the case. We see it all the time with other legacy assets like art, collectibles, and especially small businesses. Take, for example, a father who spent his life building his profitable small family business to pass on to his children. Sometimes the heirs aren’t interested in running the family store after dad passes. No matter how much that father tries to teach them how to run the business, they just don’t care enough to learn.

You don’t want to rely on your heirs’ knowledge of Bitcoin to make sure it passes properly, because self-custodied bitcoin that doesn’t have a transfer of custody upon your death is basically lost bitcoin.

Letters don’t work with even legacy assets

Letters don’t work with even legacy assets

Even if you are the Shakespeare of letters of instruction, you still won’t be able to write a perfect letter to make your heirs understand how to successfully gain custody of your bitcoin. We’ve seen it with even legacy assets: letters of instructions don’t really help.

Why not? Your situation and your assets change over time, and people overestimate their ability to keep these letters up to date. It’s a lot to remember and to actually update your letter every few months.

On the flip side, most heirs (and most humans) are terrible at reading, comprehending, and following instructions. Some people struggle with IKEA furniture instructions… Just imagine how hard it will be to understand a letter of instruction especially after the death of a family member or friend. On top of that, your letter probably won’t be one page long; it will be several pages of difficult things for an amateur to comprehend.

It’s not because your heirs are dumb; it’s the emotional circumstances. We see heirs struggle with even basic assets that they are super familiar with (bank, brokerage accounts, etc.). Self-custody bitcoin would be a HUGE hurdle for a non-bitcoiner to deal with, especially relying only on your letter of instruction.

Bitcoin inheritance treasure hunt

Bitcoin inheritance treasure hunt

A letter of instruction is too often a “treasure map” to various seed phrase shards or wallet locations. Turning it into a treasure hunt is a terrible idea. It’s an even more complicated and worse version of a letter of instruction. We’ve seen treasure maps and letters of instruction fail for simple things like the keys to a storage locker or the location of important original documents. What happens if things get moved around or your letter isn’t up to date? It’s a dead end more times than not.

For these reasons, we highly discourage relying on a treasure map for any part of your bitcoin inheritance plan. Of course, you can still have a letter of instruction, but it should not be a featured piece of your estate plan. At a later date, we’ll discuss what should be the features of your bitcoin inheritance plan.

In the meantime, check out my book, “How Probate Works,” available on Amazon. It will help you understand the steps of probate before you further complicate it with Bitcoin.

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E332 Your Bitcoin Inheritance Plan Must be Frictionless

E332 Your Bitcoin Inheritance Plan Must be Frictionless


We’ve talked before about why Solo Ager estate plans must be frictionless. Same goes for a bitcoin inheritance plan, even more so.

The best inheritance plan is the one that actually exists

The best inheritance plan is the one that actually exists

In general, 60 to 70% of people have no will or estate plan at all. Why don’t they have an estate plan?

44% is due to procrastination – “I have time; I’ll get to it later.”

25% of people are not sure where to start.

13% say that it is too expensive to create an estate plan.

In the New York City area, the cost to set up an estate plan with an attorney ranges from $1,500 to $4,000. Especially if you don’t have the liquid funds available, it’s an understandable hesitation.

Making an inheritance plan is a series of tough decisions

Making an inheritance plan is a series of tough decisions

We only have a limited amount of brain power for decision-making per day! Creating an inheritance plan uses a lot of that decision-making fuel. For example, do you start with a lawyer or do it yourself? If you choose a lawyer, do you know a good lawyer? Now you’re spending time and energy asking for referrals and setting up consultations. If you choose to make the plan yourself, what software will you use?

Once you decide on hiring an attorney vs. a DIY plan, do you want a will or do you want a will and a trust? There are many legal decisions to make as you develop your plan.

Next, who will inherit your estate? With a nuclear family, this will probably be straightforward. But, perhaps you want to add charities, friends, etc. You will need to decide what amount to give to each beneficiary.

Who will be your executor or trustee? If you have minor children, who will be their guardians?

These are just the major things you have to think about when planning your estate. Once you make it through one decision, you have to move on to the next. It’s easy to see why so many people put off making an estate plan.

Bitcoin custody adds more decisions to your inheritance plan

Bitcoin custody adds more decisions to your inheritance plan

How will you hold your Bitcoin while you are alive to make it easier to transfer upon your death? How (technically) will that custody transfer to your executor when you die? There are technical logistics that you don’t have to worry about with legacy assets.

Will transfer actually work? From my conversations with various bitcoiners, many seem a bit overconfident that their bitcoin inheritance plan will work seamlessly. In our experience, even common assets, like stocks and bank accounts, have problems transferring easily, let alone something like bitcoin, where your heirs are probably very unfamiliar.

Have you compromised your existing security too much to make your plan happen when you die (meaning, is it a bit too easy to make a transaction while you’re alive)? On the flip side, have you compromised your existing convenience too much to make your plan as secure as possible (meaning, is it a pain to make a simple transaction now)?

Who in your life understands bitcoin custody, probate, and taxes well enough to be your executor? Chances are that you don’t know someone knowledgeable in all of those areas. This is where we can help as professional executors.

Most importantly, remember, the best inheritance plan is one that actually exists. You have to have something, or else you have nothing!

To learn more about probate, check out my book, “How Probate Works,” available on Amazon. It doesn’t address bitcoin specifically, but it can help you understand what’s involved in administering an estate. Hopefully soon, I will complete my bitcoin inheritance book!

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E330 Your Bitcoin Inheritance Plan Must be Flexible

E330 Your Bitcoin Inheritance Plan Must be Flexible


Barring a terminal illness or physician-assisted death, it’s very hard to know when you will die. The world changes very quickly, and you do not know what the world will be like at the time of your death. For example, there were no iPhones two decades ago, and now look how technology has evolved.

So, to future-proof your plan, you must keep it as flexible as possible.

Inheritance plan vs actual circumstances

Inheritance plan vs actual circumstances

In general, your estate plan will be different from the actual circumstances upon your passing. For example:

  1. Your beneficiaries and your executor may be very old or may not be alive. Or, your relationships with them may have changed.
  2. Your beneficiary is wealthier than you anticipated and you may not want to leave as much money to them anymore.
  3. Your assets have changed. Say you plan to give your nephew 10% of your bitcoin. But, when you pass, your bitcoin is worth way more than you ever imagined. Now that 10% is a pretty hefty chunk of change, and you didn’t intend to leave your nephew quite that much.
  4. Most people do not have an estate plan at all, and even the ones who have a will or a trust don’t update them. Supposedly, 70% of plans are not up to date and 20% of them haven’t been updated in 5 years or more. That’s a lot of people with ex-girlfriends still named as beneficiaries in their estate plan… But, let’s be realistic: if we didn’t do estates for a living, we’d probably forget, too!
  5. No matter how much you plan for your death, there is a general chaos surrounding the probate process. You don’t know who will be alive, who will cause drama, or who will sue the estate because they are upset about how you wrote your will. People think that their heirs and beneficiaries will be cordial, but when money is involved, you never know.

Bitcoin evolves quickly

Bitcoin evolves quickly

Bitcoin is a young asset, and it is still in a very fast evolutionary stage. Bitcoin has gone from your wallet being only available on your own node (if you run core software), to paper wallets where you write or print out your code/seed phrase/key, to HDD, to multisig wallets.

And that’s just wallets! Now you have second and third layers from Lightning and Arc coming on. There are more people with their own nodes now. Who knows what’s next? Will you update with each evolution? Unlikely. So, your plan needs to be able to adapt to the circumstances surrounding your death.

Even our Bitcoin podcasts have evolved over the past few years!

When to automate?

When to automate?

One of the main points in using Bitcoin is to eliminate trusted third-parties and middlemen. In general, automation is best suited for predictable and repeating tasks such as regular billing, social media posts, or other high volume tasks.

But there are certain circumstances where it’s not wise to use automation. Using automation is a poor choice when the task requires decision-making; it’s the opposite of predictable and repeating. You do not want to automate your estate plan. As we discussed above, you do not know what the world or your family tree will be like upon your passing.

In traditional, legacy estate plans, beneficiary designations don’t work very well. It is a form of automation to say, “Upon my death, everything will go to this person.” Avoiding legal fees and probate sounds great, but you are assuming that your plan will be up to date. You’re assuming that the amount in the bank account at the time of your death is the amount you want that beneficiary to get. More often than not, this scenario doesn’t shake out the way you hoped.

A custodial Bitcoin solution means naming a beneficiary on your Kraken or Binance account. But when automating a non-custodial Bitcoin inheritance plans (like a time-lock, letter of instruction, sharding, etc.), you have frozen in time an inflexible solution for a situation that requires great flexibility.

For probate in general, as well as Bitcoin, it is more important to rely on a human executor who can assess the situation and make the appropriate decisions. In probate, the executor may have to deal with a bureaucrat or a government employee who is asking them to do something ridiculous to get the information needed for the estate. You need a human being who can perceive that the instructions are strange and find a way to get the job done. That’s the difference from being stuck in a non-flexible system that doesn’t have decision making capabilities.

In conclusion, your Bitcoin inheritance plan needs to be as flexible as possible to adapt to the evolution of Bitcoin and our ever-changing world.

To learn more about probate, check out my book, “How Probate Works,” available on Amazon. It doesn’t address Bitcoin specifically, but it can help you understand what’s involved in administering an estate. Hopefully soon, I will complete my Bitcoin inheritance book!

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E326 Why Not a Deadman’s Switch for Bitcoin Inheritance

E326 Why Not a Deadman’s Switch for Bitcoin Inheritance?


A deadman’s switch is a seemingly elegant and trustless solution for bitcoin inheritance. But if you think it through, it currently has too many problems to work securely.

A deadman’s switch is a protocol or mechanism where, if the creator misses a periodic check-in (ex. push a button every 3 months, reply to a monthly email, etc.), it’s assumed the creator has died and will trigger an event.

Types of bitcoin dead man switches

Types of bitcoin dead man switches

With the first type of deadman’s, upon failure to press the button, a pre-loaded transaction executes. Imagine that you set up your E*Trade account to sell a certain number of shares for a certain amount. Similarly, everything is “loaded up” in your bitcoin deadman’s switch, and the pre-loaded transaction automatically executes if the check-in is missed. What happens if you miss the check-in not because you are dead, but because you forgot? It all depends how you set up your plan. So it would be wise to have multiple check-ins required before the event is triggered.

With another type of bitcoin deadman’s switch, upon failure to press the button, a secret gets delivered. The secret may be your seed phrase or pass phrase, and gets delivered by email, telegram, or phone call or sms text. to your heir or executor.

Problems with a deadman’s switch that executes a bitcoin transaction

Problems with a deadman switch that executes a bitcoin transaction

First, this creates a beneficiary problem. Even in non-bitcoin scenarios, people name beneficiaries on their accounts in order to bypass probate and distribute the account directly to the beneficiary without any supervision.

The problem with naming beneficiaries on your life insurance, IRA, etc. is that people often forget who their beneficiaries are and they forget to update their beneficiary designations. Maybe they named an ex-girlfriend or a since-disowned relative.

Bitcoin is also ever-changing and could be worth way more or less at the time of your death. You won’t know for sure how much your beneficiary will receive from this pre-loaded transaction. That’s a hard thing to try to keep up to date.

If you forget about this pre-loaded transaction and it’s not up to date, it probably conflicts with the rest of your estate plan. Say your plan was for Alice, Bob, and Charlie to each get a third of your wealth. You figure that your stocks are worth about 1/3, your bitcoin is about 1/3, and your house is about 1/3. It seems clever enough to leave one of those to each of the beneficiaries, right? What happens if the assets fluctuate wildly in value in the remaining years until your death? Now your heirs won’t receive equal shares of your wealth like you intended.

Another problem is that your bitcoin is stuck in the UTXO, which is a problem for creating pre-loaded transactions. You can’t move the UTXO without setting up a new deadman’s switch. It’s like having a bank account that can only have a beneficiary designation as long as you never withdraw or deposit into that account. You can never move the account to another bank. This only makes sense for the portion of your bitcoin that you plan to keep in deep cold storage. It’s like a treasure chest that you bury.

The last problem with this plan is that the transaction must execute to an heir’s wallet. What if your heir doesn’t have a bitcoin wallet? Even if you set up a wallet for them, will they know how to use it? Do they know how to secure their seed phrase? You can set up a custody wallet on an exchange like Coinbase, Kraken, or Gemini. But most bitcoiners with self-custody don’t want their bitcoin going into a third-party wallet for their heirs.

Problems with a deadman switch that delivers a bitcoin secret

Problems with a deadman switch that delivers a bitcoin secret

This plan has horrible operational security. You must write the secret (seed phrase, pass phrase, PIN) on a hot (online) computer. You must be able to trust the service’s servers, encryption, etc. And remember that the secret will be delivered via email, telegram, phone call, or sms text. This plan does everything you’re told not to do with self-custody operational security.

You could instead use a multisig or shard your seed and give pieces to different people. But if you use those solutions, then you don’t even need a deadman’s switch. Why add another layer of complexity to a complex situation?

A deadman’s switch seems attractive, because you don’t have to trust anyone. But if you walk mentally through the scenario, you can see that using a deadman’s switch isn’t a great solution. Probate is a complicated process and adding bitcoin to the mix brings a whole new level of complexity. To learn more, check out my book, “How Probate Works,” available on Amazon.

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E322 Multisig versus Passphrase with a Bitcoin Executor

E322 Multisig versus Passphrase with a Bitcoin Executor


Multisig or a passphrase (“poor man’s multisig“) are two ways to transfer custody to your bitcoin executor upon your death. Let’s compare, so you can decide which best fits your bitcoin inheritance plan.

Why multisig for bitcoin inheritance?

Why multisig for bitcoin inheritance?

The main feature is splitting access to your bitcoin, so that it’s not catastrophic if just one of your keys is revealed, leaked, or hacked. While you should always be careful of how you manage your security materials, using a multisig allows you to be a little less uptight with your security practices. By contrast, if all of your stash is in a singlesig wallet, then access to that one key could cost you all of your bitcoin. If one key is lost, you lose it all. If one key is hacked, it’s all stolen.

Also, this is not necessarily what’s best for estate administration (which can last years), but rather the immediate transfer of custody to your executor. So this is not about how your executor will hold your keys during his tenure as your executor. This analysis is specifically regarding the pros and cons of how smooth the transfer will be from you to your executor upon death.

Lastly, the general pros and cons of multisig vs. singlesig with a passphrase (multi vs. single vendor risk, costs of multiple hardware wallets, ease of setup, etc.) are beyond the scope of this analysis.  For the purpose of this discussion, we are just looking at the pros and cons of transfer to your executor upon your passing.

Leaving a passphrase for your bitcoin executor

Leaving a passphrase for your bitcoin executor

First, we’ll look at using a passphrase as a poor man’s multisig for your non-bitcoin executor. Your seed phrase and your additional passphrase combine as an imperfect 2-of-2 multisig of sorts.

A passphrase would be easier for a non-bitcoin executor, in theory, because it feels more like just a second password. By contrast, multisig can be more intimidating: and feel like those movies with a nuclear submarine where the captain and the first mate must each put a key in and turn on the count of three…

If you or your executor lose your passphrase, there’s at least theoretical hope to recover it with enough computing power (depending on length and complexity of the passphrase). People are not too great about choosing phrases randomly, and often use short passphrases that are easier to remember. A lost 12- 24-word seed phrase could not be recovered for the foreseeable future.

You could also hide your passphrase in plain sight, so that it’s easier to transfer to your executor. For example, writing a letter to your executor, where every fifth word comprises your passphrase. My understanding is this is poor opsec with a 12- or 24-word seed phrase, because seed phrase words are a finite set, and hackers have algorithms to scan text for seed phrase words.

But be aware: passphrases are not really designed for this, and there’s not much support for its use as a poor man’s multisig. A non-professional executor may have trouble finding information online about passphrases as a 2-of-2 multisig. Whereas there are companies that, for a consultation fee, will take the time to walk the executor through the multisig process.

How your bitcoin executor will handle your multisig

How your bitcoin executor will handle your multisig

With a 2-of-3 multsig, there are three independent keys (seed phrases and/or hardware devices), and you need two of them to access the bitcoin and make a transaction.

Multisg has more leeway for error: even if you lose one key, you still have two and can recover. This provides a margin for error in terms of catastrophic loss. With a passphrase (or any 2-of-2) set up, there are only two “keys”, so if you lose either one, you can’t access your bitcoin.

A second benefit of multisig is that each key is strong and offers full protection because each key is a 12- or 24-word seed phrase, created with the fully researched cryptography security. Whereas you create your own passphrase, and we’re all pretty bad at being sufficiently random (admit it, we use our kid’s name, anniversary, favorite movie quote, etc. as passwords).

Lastly, multisig has lower “smudge risk” than a passphrase.  Since 12- or 24-seed phrase words comes from a finite set of possible vocabulary words, if just of the handwritten seed words and smudgy, there is still good a chance of figuring out the word. But since your passphrase can be any word, in any language, or even gibberish, guessing a smudged word would be complete guessing.

The focus here is how your executor will solve the puzzle after your death so your bitcoin isn’t lost. For further reading on what executors deal with in general, check out my book on Amazon, “How Probate Works.”

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E318 Bitcoin Inheritance Needs Layers

E318 Bitcoin Inheritance Needs Layers


As you may know, Bitcoin does not have layers like legacy and traditional accounts do, so an inheritance plan needs to be created. We will discuss the drawbacks of constantly seeking and getting stuck on a “perfect” Bitcoin inheritance plan, and a few solutions for approaching the creation of these layers.

Legacy assets have inheritance layers, bitcoin does not

Legacy assets have inheritance layers, bitcoin does not

Legacy assets (banks and financial institutions) already have several layers or contingencies that you may not even realize. On the testamentary side (deciding who gets what), there may be a will, a trust, beneficiaries on the account, or payable on death designations. If you don’t have any of those, there are still default inheritance state laws called intestacy laws. Basically, even if you do nothing, there is a safety net of who gets what, and there are backup layers. You could name backup heirs, successor executors, etc., but even if you don’t, the intestate laws will dictate inheritance. This is not the case for Bitcoin.

The other side of inheritance is custody, since so many Bitcoiners self-custody. When you have Bitcoin assets on an exchange, you have a few failsafe layers. This includes password recovery. While you are living, you could contact the institution to gain access. When you pass, your heirs have a third-party custodian that they can turn to for assistance with accessing and liquidating. With self-custody, you don’t have this naturally built in to turn to.

Worst case, with traditional and legacy accounts, there is the process of unclaimed funds. This is where the assets go to the state after a certain amount of time if they are not accessed. This is in place, so the money doesn’t simply disappear or get lost. Bitcoin does not have anything like this yet.

Again, Bitcoin self-custody has few to none of these fail safes as of right now.

“Perfect” bitcoin inheritance solutions

“Perfect” bitcoin inheritance solutions

Anthony has spoken with many Bitcoiners, and he keeps coming across the same problem – people are getting stuck waiting for the “perfect” inheritance solution. The plans, ideas, and visions for are different for each Bitcoiner, based on their level of security and knowledge. But for everyone it is important that you do not wait. While you’re working on your perfect plan, put in a satisfactory solution for the time being. You need a safety net.

If you worked really hard on your perfect inheritance solution and you believe it will work, great. But what if it doesn’t? There are no layers or fail safes in plan with Bitcoin self-custody. So, it’s up to you to create all of these layers, backups, safety nets, etc., so the funds aren’t lost.

How to make bitcoin inheritance layers

How to make bitcoin inheritance layers

Start with a layer that you’re HIGHLY confident will work, even if you don’t love it (for example, it relies on a third party, exposes your KYC, etc.). Once you have that in place then add layers that increase your comfort and increase complexity. But keep in mind, increased complexity may increase the risk of not working.

Here is one example:

First is the base layer and one way to do this is to create a poor man’s multisig. If you have a single sig hardware wallet, you can give the seed phrase to your heirs and successor heirs (your wife and children perhaps), store a handwritten copy of your seed phrase in safe deposit box, and give your passphrase to bitcoin-savvy friend or professional bitcoin executor (executor and successor) named in your will. Again, you may not love this for privacy reasons, but you are fairly confident this would work.

Now, with the base in place as your safety net, you can do whatever you want. You can teach your heirs in hopes they will understand self-custody enough to take custody on their own with a letter of instruction and treat it as a family bitcoin wallet.

Again, remember you are not creating your perfect plan, you are creating your own safety net until you have your perfect plan.

Check out my book, “How Probate Works,” to get an understanding of the probate process. Then add all the extra steps your executor and heirs will need to do to administer your bitcoin. As always, please reach out with your questions and feedback!

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E313 How to Think Like Your Bitcoin Heirs

E313 How to Think Like Your Bitcoin Heirs

Here’s a mental exercise to put yourself in the shoes of your bitcoin heirs. The underlying assumption is that your heirs know nothing or know way less than you do about bitcoin. Many bitcoiners have a pretty deep knowledge of bitcoin, self-custody, operational security, and so on. And you may be so deep down the rabbit hole that you forget how daunting and confusing bitcoin can be.

Maybe by the time you pass away, bitcoin knowledge will become more common. But for now, most people don’t know what they’re doing. All of the above topics may as well be a foreign language to your non-bitcoiner heirs. And that’s a useful way to imagine how your heirs will feel. Think as if your bitcoin heirs will probate your estate in a completely foreign country (or planet).

Bitcoin is a different world

Bitcoin is a different world

Imagine you had to probate an estate in a completely foreign country. Even with translation apps, you really don’t understand the basic language, especially slang and technical jargon. Even the most basic concepts are completely different.  For example, opening or closing an “account” doesn’t make sense in that foreign jurisdiction.

This is the type of confusion that your non-bitcoiner heirs may face, even if they have dabbled in bitcoin before. On top of all that, your heirs are dealing with the grief of your passing and other family dynamics.

Now imagine your heirs attempting bitcoin inheritance schemes

Now imagine your heirs attempting bitcoin inheritance schemes

Now imagine your heirs attempting to follow a letter of instruction, a treasure map to constitute seed phrase shards, or operating a multisig wallet. If they do something wrong, everything could be lost.

Many of us still have a hard time empathizing, and think “I’ll write such a clear letter of instruction, no problem.” I’m sure your heirs wouldn’t want to be thrown into another planet with just one piece of paper telling them what to do. Remember, you have spent years researching and learning about bitcoin. An instruction letter is going to seem absurd and overwhelming to someone who knows next to nothing about bitcoin, let alone the probate process.

Pretend your uncle tells you he has assets in a foreign country: you don’t speak the language, you don’t know the customs or systems, and at every turn a corrupt bureaucrat or scammer could irrevocably steal everything. But don’t worry, he’s writing a really clear letter explaining everything!

How would you help your heirs with a foreign probate?

How would you help your heirs with a foreign probate?

Whatever you think they’d need for a foreign probate is how you should help your heirs with their bitcoin inheritance.

You could try connecting them with a friend who is (reasonably) trustworthy and familiar with the foreign situation. You could go a step further by finding and vetting a local lawyer or other professional who your heirs can hire to help.

I know this rubs a lot of bitcoiners the wrong way because these ideas involve relying on a trusted third-party. From the point of view of someone who hates “trusted third-parties,” these suggestions may be a necessary evil to make sure your heirs actually inherit your bitcoin. A trusted third-party can be a back-up plan, but you can’t rely solely on a letter of instruction to a clueless bitcoin heir. That’s just asking for a post-death disaster.

If your heirs can’t administer your bitcoin correctly and it gets lost, everything you worked so hard for is gone.

As you know, I’ve been touring bitcoin communities to get a sense of how it all works. One thing I’ve observed from bitcoiners is their inability to remember how hard it was for them in the beginning. They know so much now, but it’s easy to forget that their heirs are starting from scratch.

Another thing is that people still mess up when dealing with “normal” bank accounts and brokerages during probate. Probate is not an easy process, and adding bitcoin to the mix just makes it that much harder for your executor and heirs.

Probate (can apply to Bitcoin)

Check out my book, “How Probate Works,” to get an understanding of the probate process. Then add all the extra steps your executor and heirs will need to do to administer your bitcoin.

As always, reach out with your questions and feedback!

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E308 Have a Placeholder Bitcoin Inheritance Plan

E308 Have a Placeholder Bitcoin Inheritance Plan

A placeholder bitcoin inheritance plan may be the solution to spur bitcoiners into action, rather than pursuing a “perfect” plan. Instead of holding off on a plan until it’s perfect, have a placeholder plan in the meantime in case anything happens to you while you are still perfecting your inheritance plan.

Perfect is the enemy of done, and using a placeholder plan may help avoid overthinking and analysis paralysis.

Why bitcoiners need SOME inheritance plan

Why bitcoiners need SOME inheritance plan

With bitcoin, there is no default safety net. Other assets, like a regular bank account, are connected to centralized institutions, meaning the funds won’t be lost. Banks and brokerages offer features such as password recovery. You heirs can submit letters testamentary to these institutions to make a death claim on your assets. Even if no one claims in a timely fashion, the funds don’t just disappear, they go to the state’s unclaimed funds.

But not with bitcoin! You need a plan for your bitcoin. The cryptographic security solutions (password, seed phrase, etc.), also make it hard for your heirs to access your bitcoin upon your death. So even though 60% of people have no estate plan, a bitcoiner MUST have some kind of plan to avoid catastrophic loss

Baselayer bitcoin inheritance plan

Baselayer bitcoin inheritance plan

This doesn’t have to be a plan that you love; t’s just a placeholder until you complete your treasure map or other “perfect plan.”

Once you have your “perfect” plan, don’t just scrap the placeholder. The placeholder can shift to your backup plan. Even with traditional estate planning, people name successor executors and backup beneficiaries. Think of your bitcoin plan in the same way. It’s your own unclaimed funds scenario. If your carefully crafted plan doesn’t work, at least you have a backup plan in place.

Placeholder bitcoin inheritance plan must be frictionless

Placeholder bitcoin inheritance plan must be frictionless

Your placeholder plan must be easy for you to set up or else you won’t do it. Otherwise, you’ll continue pondering that elusive perfect plan (or fail to have a backup).

First, your placeholder plan should be low cost regarding money and time. It should be easy to do yourself with minimal need for outside assistance.

Second, it should be a plan that you know will work to avoid catastrophic loss, even if it sacrifices a little bit of what you care about. For example, you may have to give up client information, or rely a little bit on a third party like a professional executor, or maybe it’s not your ideal security situation. As long as the placeholder plan falls within tolerable thresholds, you can be willing to sacrifice a little bit to not lose a lot!

I haven’t fleshed out a good placeholder plan yet, but a good place to start is a DIY will coupled with some version of a poor man’s multisig, while using a professional executor as a keyholder.

Again, I know this is not exactly the plan you want, but set it up so that it works for now. Otherwise, there is no safety net while you are developing your prefect plan.

Probate (can apply to Bitcoin)

My book, “How Probate Works,” will help you understand the foundations of probate. This should give you guidance as you develop your plan, because you’ll learn about situations that your heirs may encounter after your death.

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E304 Poor Man's Multisig for Bitcoin Inheritance

E304 Poor Man’s Multisig for Bitcoin Inheritance

What are some less costly alternatives for a managed multi-sig bitcoin inheritance plan?

Why poor man’s multi-sig?

Why poor man’s multisig?

A multi-sig setup is good for inheritance purposes, because multiple keys are needed to access your funds. This way, there’s no pressure on one single keyholder to have high-level security. In a multi-sig, if one person loses their key, an attacker or hacker can’t do much without the other keys. Of course, the keyholders should keep the keys secure. But if one leaves his 12 key words laying around, it’s not as risky as it would be if he was the sole keyholder. Also, the keyholders should be geographically distributed – don’t give them to people all living in the same house.

A drawback of using multi-sig is that it can be expensive, especially if your stack isn’t that big. Having 3 to 5 hardware wallets can cost several hundreds of dollars. It might not be cost-justified by the current level of your holdings.

Many of the good plans are through popular services (such as Unchained Capital, Casa, and Nunchuk). However, those are possible single points of failure. If a hacker knows that some of your keys are with these companies, they may find a way to access them. It’s easier for a hacker to hit one of these companies instead of hitting a computer in a random house.

These companies are also an easy target for subpoenas. Maybe you going through a divorce or a child custody battle, or maybe you have IRS or creditor issues. They may figure out that you are using a big company and figure out where to serve papers in hopes of getting your account information.

Separate seed from passphrase

Separate seed from passphrase

What are some poor man options to avoid the expense of multiple hardware devices, as well as the small risk of using a centralized key-holding company?

One option is to separate your seed from your passphrase. If you have a wallet with 12 or 24 words, you can additionally add a passphrase (which is an equivalent of a 13th or 25th word). Now you need both the 12 or 24 words and the passphrase to access the wallet.

While you are alive, you can just transact normally with your wallet and passphrase.

But the plan is to give the seed phrase (the 12 or 24 words) to your executor and backup executors, while giving the passphrase to your heirs or someone else. After your death, those two parties need to team up to access your wallet. While you are alive, they cannot access your wallet unless they combine the seed and passphrase.

This is similar to multi-sig, where neither keyholder has to exercise extreme caution. But you should choose people who will keep these safe.

BUT what if your executors and heirs are the same people? In that case, you may want to hire a professional executor as a professional keyholder. Giving your adult children the seed and the passphrase makes it very easy for them to conspire together while you are alive.

Separate clone wallet from PIN

Separate clone wallet from PIN

Another option is to separate your clone wallet from your PIN. You can load your seed phrase into a dedicated hardware wallet that is not directly connected to the internet. In order to turn on your device, you have to enter a PIN. During your life, you transact with your wallet and PIN as usual.

Here, the bitcoin inheritance plan is to give a clone wallet to your executor and backup executors without the PIN. Then you give the PIN to your heirs or someone else, creating your own 2 of 2 multi-sig. Again, neither keyholder needs to exercise extreme caution, since there is not much anyone can do with only one piece of the puzzle.

A huge drawback is that without the PIN, your executor cannot keep the clone wallet up to date (software updates, etc.). Depending how much time lapses before you die, he could end up with a very outdated device. To address this, you may have to do some periodic updates for the executor.

Probate (can apply to Bitcoin)

There’s no perfect plan; these are some options for folks who can’t cost-justify using a multi-sig, but like the idea of splitting up access for security reasons.

My book, “How Probate Works,” applies to your bitcoin inheritance planning because it explains the kinds of tasks your executor has to do when you pass.

I’ll be doing more talks to groups on this topic and we plan to post them shortly. In the meantime, keep your bitcoin questions coming!

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E300 Inheritance by Bitcoin Family Wallet

E300 Inheritance by Bitcoin Family Wallet

A shared Bitcoin family wallet sounds like a simple way for your heirs to inherit upon your death. We’ll discuss the advantages of this setup, as well as some important drawbacks.

What is a Bitcoin family wallet? It is a shared Bitcoin wallet, but not a multisig wallet. It is a singlesig wallet/device/app that multiple family members have access to.

Hot wallet example: husband, wife, and kids use an app and all of them have the password and seed phrase.

Cold wallet example: husband and wife share physical custody of the hardware wallet, PIN, and seed phrase. The kids know where the parents keep the hardware wallet and perhaps even know the PIN (but not the seed phrase)..

Pros of Bitcoin inheritance with a family wallet

Pros of bitcoin inheritance with a family wallet

Compared to other inheritance solutions, a family wallet is easy to set up and maintain. Unlike mulitsig or secret sharing, there are no extra steps. If you are comfortable with self-custody, then you are most likely comfortable updating your hardware device and keeping firmware up-to-date.

It is also easier to make transactions during your lifetime. If you want to send or spend during your lifetime, it is easier with singlesig. With multisig, you have to get multiple signatures, and with secret sharing you might have to reconstitute your key to sign any spending transactions. With a shared family wallet, for example, your just sign the transaction with no extra steps.

Because the shared family wallet is one wallet (and everyone knows it’s stored in mom’s dresser), there is very little treasure hunting upon death. It’s even easier if everyone knows the PIN.

Cons of a Bitcoin family wallet

Cons of a bitcoin family wallet

It is extremely poor security to have so many different people with access to a single wallet.

First, there is the risk of a family member going wayward and just taking the wallet. Sadly, there was a news story of a son who drugged his dad’s tea to get to dad’s Bitcoin. No family is perfect, and if someone decides they are entitled to something more, they have instant access to a shared wallet.

Second, when you have multiple people who have full access to a wallet, there are multiple points of careless error. For example, the son doesn’t quite appreciate how self-custody works and leaves his copy of the seed phrase laying around. Everyone who has access to the wallet needs to take steps to maintain a high level of security. They all need to understand that the seed-phrase needs to be better protected than saving it on Google Drive (bad idea!).

Similarly, there will be varying levels of interest and understanding of self-custody among the family members.

Inheritance problems with a Bitcoin family wallet

Recently, we’ve seen a case with a shared family wallet and multiple family members have been contributing/purchasing into the wallet. That can cause confusion as to who really owns what. Sure, you can figure out which transactions and which UTXOs belong to which purchaser. But it creates accounting issues and increases the risk of family drama even to the point of litigation. Commingling of funds is never a good idea, and this is a good example as to why.

Upon your death, the question becomes: who’s the boss? Whenever the answer is unclear, it increases risk of family conflict. With legacy probate, it’s usually legally clear who’s in charge (the named executor or trustee). That named person has the authority over the estate and that person also bears all the responsibility.

Inheritance problems with a bitcoin family wallet

If there are multiple key holders, whoever starts signing first is in charge. It’s easy to imagine someone sweeping the wallet into a different wallet and seizing control. Now that person gets to decide who gets what. That is a recipe for family drama.

Another problem is: will your heirs figure out what to do with Bitcoin upon your passing? Even if you are a Bitcoiner, your kids may not care enough to figure it out. For example, our client called saying: “My son is very intelligent, but he has no interest in learning Bitcoin custody now. He says he’ll figure it out if anything happens to me.”

It’s a bad idea for even the smartest people to try and figure out Bitcoin on the fly. They can still make stupid mistakes compounded by the emotional stress of the loved one’s death. If you make a mistake with self-custody Bitcoin, the result can be catastrophic loss. You can’t pursue unclaimed funds, and there is no password reset.

Executor (can apply to Bitcoin)

If you have a shared family wallet, you may want to consider naming a professional Bitcoin executor, hiring a professional service, or naming a friend who is very familiar with the process.

My book, “How to Hire an Executor,” is not specific to Bitcoin, but it will help you understand more about professional executor services that are available.

As you know, we love this topic. Please email your questions or leave a comment on other Bitcoin-related topics you’d like us to cover.

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