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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E245 What Happens to Your Crypto on Exchanges When You Die

E245 What Happens to Your Crypto on Exchanges When You Die


One of our listeners recently asked what happens to your crypto on exchanges when you die. How will his spouse or kids get his crypto when he dies? Our listener has roughly $500,000 in Solana, Ethereum, Bitcoin, Shiba inu, and Doge, held on exchanges: Coinbase, Crypto.com, and EToro.

Inheriting from crypto exchanges is similar to banks

Inheriting from crypto exchanges is similar to banks

Just like a bank or brokerage, you submit death certificate, letters form the court appointing the estate’s representative, claim forms, etc. Then the exchange will process the claim – sometimes slowly. Sometimes they won’t know what they are doing, and you’ll have to lead them by the nose. (This happens even with traditional banks and brokerages). Sometimes the customer service representative tells you that you need certain forms, and you spend a couple of weeks preparing the forms. Then after submitting the forms, another representative tells you to submit something different. This is all too common.

The result of this process is that your administrator or executor will have access to your crypto through the exchange account. However, it is still unclear whether an executor will collect the crypto in-kind (having the actual coins transferred to your executor) or if the crypto will be liquidated (cutting a check to the executor). My instinct is that it will be distributed in-kind. This matters, because receiving coins in-kind means the executor needs to know what to do with them.

Make sure your heirs know the crypto exists!

Make sure your heirs know the crypto exists!

This process only works if your heirs or executor knows where to look for your crypto and submit the claim. Most exchanges/apps are not sending out 1099s or statements. Your heirs and executor won’t have many clues to work off of. There won’t be a piece of mail from Coinbase that tells your heirs to look for your account there. They may be able to hunt through your email to find information, if they can get to it.

The solution is to either mention your crypto to your executor and heirs or leave a memo that your crypto exists (and where to look for it).

Don’t bother listing crypto in your will. Just like personal property, it changes too frequently. Your holdings in 2021 will be totally different in 2023. You don’t want the costly and time-consuming task of changing your will every time your accounts change. Your best bet is leaving a memo or letter.

Though we usually discuss more broad crypto topics like wallets, hardware and software, this question was specific to exchanges. Even though I’d still like to write a book on cryptocurrency for estate planning, I am a leery of writing something that could be obsolete by the time I finish it. But we shall see…

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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E232 How Crypto Transfers at Death

E232 How Crypto Transfers at Death


Let’s answer a crypto question from Haille: How does crypto transfer on death?

We’ve covered this topic in episodes 214, Transferring Bitcoin Upon Death, and E222, Beneficiary Designations for Cryptocurrency Exchanges, but we’re happy to answer Hallie’s specific questions here.

Is the will required to be probated if the beneficiary of the will has access to the Coinbase holder’s account?

Is the will required to be probated if the beneficiary of the will has access to the coinbase holder's account?

Yes, to legally access that account, you must probate the Last Will and Testament of the decedent.

Individual Coinbase accounts do not have beneficiary designations. (Most major exchanges don’t; this is not specific to Coinbase). A formal beneficiary designation means that it is technically your account, but that is not the case here. You need to submit letters testamentary and death certificate to Coinbase, and they will grant access to you.

Could the beneficiary simply transfer those funds to themselves?

Could the beneficiary simply transfer those funds to themselves?

Technically, yes, but it could lead to legal problems.

This is substantially similar to dealing with a traditional bank/brokerage account. Like a Chase or a Fidelity account, for example: just because you have the decedent’s username and password does not mean that you can legally access the account. You have to go through the process before you make transactions. It’s tempting to think of these as different situations, because cryptocurrency might not feel like “real” money. But, once you compare it to a bank account, then it makes sense to go through the proper process to access the funds.

Why can’t I access deceased online accounts?

Why can’t I access deceased online accounts?

As a general explanation, the probate process is meant to protect all possible heirs/creditors.

“I’m the heir named in the will, why can’t I just take the money?” Well, what if the will is invalid for some reason? Maybe it wasn’t signed correctly or signed by an incompetent person.

Even if the will is valid, there are situations where other people are entitled to the funds before you. There could be a “spousal election” where a disinherited spouse has a right to submit court paperwork and take a share before you.

Additionally, IRS or other creditors are entitled to receive funds before you. Suppose the decedent died with major debts. The beneficiary named in the will gets what is left after the debts are paid.

These are just a few examples. Even if these don’t apply to your situation, it doesn’t mean that you can skip probate! The probate process, albeit long and involved, is an important layer of protection.

Hopefully this answers Haillie’s questions. We love trying to wrap our heads around these cryptocurrency situations, so please feel free to keep sending 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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E227 First Impression of Casa Beneficiary Account

E227 First Impression of Casa Beneficiary Account


Casa is really becoming a leader in Bitcoin estate planning and custody solutions. They recently launched their version of beneficiary designations for cryptocurrency, and I’m really hopeful about this. I think this is something that needs to be in place, because there is always the risk of catastrophic loss. So, let’s take a look.

How Casa Beneficiary works

You start by naming a beneficiary on your cryptocurrency, and he or she gets 2 keys in 3 of 5 multisig.  

How Casa Beneficiary works

Casa uses 3 of 5 multisig as their custody solution for preventing the risk of catastrophic loss and preventing theft.

What is multisig? 3 of 5 means there are 5 keys to your cryptocurrency, and at any time, you need 3 of those 5 keys to take action (such as buying/selling).

In this scenario: you have 3 keys, your attorney or Casa has 1, and your beneficiary has 2. 

No one has access while you’re alive. When you die, your beneficiary shows proof of death to Casa (or your attorney) and your beneficiary combines her 2 keys with that key. With 3 keys, the cryptocurrency can move to the beneficiary. 

Think about it like you’re dealing with a bank or brokerage company. The beneficiary goes to the bank with a claim form and a death certificate. Similarly, the beneficiary goes to Casa with a claim form and death certificate to prove the person died.

Pros and Cons

Pros

(1) It avoids probate (for better or worse). “Better” meaning that the surrogate’s court won’t have to deal with cryptocurrency. “Worse” meaning that you’d be avoiding checks and balances (such as the ability for a child to contest if disinherited wrongly, or someone taking advantage of you by making himself your beneficiary). While probate is a pain, it is there for a reason: to make sure people get what they’re supposed to get.

(2) Casa’s multisig solution, in general, is an excellent reduction of risk of theft and catastrophic loss. I still think there needs to be a better version of it, but it does do what it’s supposed to do. They will probably work out all the kinks, and this is just one step in the evolutionary process.

(3) Casa will consult with and “handhold” the beneficiary (such as key custody, how to get access). Will your beneficiary even know what to do with the 2 keys from Casa?

Cons

(1) The beneficiary still must maintain 2 keys, and the beneficiary may not even know what they are. It’s unusual for a family to have two people who know how to deal with cryptocurrency. Casa tries to mitigate this by consulting with the beneficiary to make sure she knows what to do. I’m not sure how this will work, as my experience shows that handholding usually just isn’t enough in a sticky situation. 

(2) It’s a bit expensive. To be eligible for this service, you must have a Casa Diamond account, which is $5,000 a year. The cost of an estate planning attorney is about $2,000 to $10,000 every four or five years. If you have a lot of cryptocurrency, it may be worth it since other benefits are included in the account. 

(3) Beneficiary designations are not always ideal, as you may recall from a recent blog on illiquid estates. 

It will be interesting to see how Casa’s multisig solution evolves. Owning cryptocurrency means you will need an estate plan. Every time I sit down to think about writing a bitcoin estate planning book, something new happens! However, if we get a lot of positive feedback, I will consider writing a short guide that includes high-level principals that don’t seem to change. Would you be interested? Let us know in the comments.

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.

Request your free consultation

reCAPTCHA is required.

Sign-up for your free consultation using the form above, and I’ll be happy to email you a free chapter from Anthony’s best-selling bookHow Probate Works.”