E318 Bitcoin Inheritance Needs Layers

E318 Bitcoin Inheritance Needs Layers

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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

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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

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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

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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

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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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E297 Lessons on Bitcoin Inheritance from El Salvador 2022

E297 Lessons on Bitcoin Inheritance from El Salvador 2022

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Here’s what I learned about bitcoin inheritance at the recent Adopting Bitcoin conference in El Salvador (my full bitcoin inheritance presentation here).

Background: (1) One year ago, El Salvador was the first country in world to make bitcoin legal tender, and (2) these conferences tend to be attended by the most hardcore bitcoiners, not so much the everyday users.

How does Chivo wallet work for bitcoin inheritance?

How does Chivo wallet work for bitcoin inheritance?

When El Salvador launched bitcoin as legal tender, that came along with a government-maintained software wallet that you can keep on your phone (called Chivo). Based on my conversations with locals and with the researcher that I hired, Chivo is by far the dominant wallet in use in El Salvador.

This is unlike other parts of the world where there are at least a dozen popular wallets (hardware and software). While the rest of the world is still scattered, El Salvador has one main wallet that everyone uses. It’s not like Mac vs. PC or Apple vs. Android phones (where people usually have one or the other).

The Chivo wallet is highly centralized and KYC (“know your client”), which means you can’t get this wallet unless it is linked to your national ID number. It is managed by a centralized entity (the government). This is the antithesis of what U.S. bitcoiners are into.

One pro is that because it is centrally managed, you don’t have to worry about losing your seed phrase. The government knows that the bitcoin belongs to a certain person.

Another pro to this is that you can name a beneficiary on your wallet, like an IRA or life insurance. If you pass away, your heirs can theoretically call customer service. The heir would need to submit the equivalent of a death certificate, letters testamentary, and a claim form to have the bitcoin transferred to the heir’s Chivo wallet.

While in El Salvador, my researcher and I tested customer service for a death claim. We called a few times to get different representatives. They had no idea what to do for a dead customer. To be fair, even if you call Binance, Gemeni, or even Bank of America, they don’t know what they are doing either!

Salvadoran bitcoin estates data

Salvadoran bitcoin estates data

There’s not much data on how it’s been working, since it’s only been one year. Most of the bitcoin users are on the younger side. El Salvador has a population of six million. Not many of the deaths in the past year were of younger people. Those who died were not bitcoin holders and also not using Chivo. For this reason, we weren’t able to gather much information about self-custody issues or seed phrases lost, etc.

Recently, Chivo enabled linking your bitcoin wallet to your legacy bank account. There’s no privacy, but the point is to minimize volatility. For example, I pay my Uber driver $10, and he doesn’t want to take the risk of bitcoin going up or down. He has the option to accept the bitcoin then immediately convert it to dollars. This is how the government addressed the users’ fears of volatility, etc.

People who need this money for daily needs want something that won’t fluctuate. If users are using bitcoin like PayPal or Venmo (converting everything to dollars), there may not be many probate issues. These users aren’t investing in bitcoin, rather just using bitcoin like a Venmo system.

Bitcoiners are thinking about inheritance

Bitcoiners are thinking about inheritance

The conference in El Salvador was surprisingly well-attended: there was standing room only, but people were also sitting on the floor. There were so many other presentations cooler than bitcoin inheritance, that I thought I’d be lucky to see a dozen people.

During the Q&A part, it seemed like multisig was the most popular solution. Remember, these were hardcore bitcoiners, and multisig is not a technically easy solution.

Shamir’s secret sharing was also a very popular solution. As you may recall, this process involves splitting up a seed phrase that’s not too risky. I will look into this further and make future posts about my findings.

But what about solutions for everyday users? They want to keep the bitcoin in their own custody without living in fear of catastrophic loss upon their passing. One possible solution is to have a multisig with someone who knows how to execute it, such as a professional bitcoin executor.

Some other observations from my time in El Salvador: the bitcoin tourists were the ones paying with bitcoin. Vendors were reluctant to let us pay for things with bitcoin. One cabbie said he accepted bitcoin, but when I arrived at the destination, he asked for dollars because his phone wasn’t working. After a little prying, I found he could open his Chivo app just fine. It seems that he didn’t know he could immediately convert the bitcoin to dollars.

Probate book

My book, “How Probate Works,” can relate to bitcoin inheritance as well. At the conference, I handed out many free copies of the book, and people were interested. If you did not get a free copy at the workshop, you can also find my book on Amazon.

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E292 Help! I Don’t Have a Bitcoin Executor For My Wil

E292 Help! I Don’t Have a Bitcoin Executor for My Will

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Choosing an executor can be very difficult if you feel you don’t have many choices, especially if you own non-traditional assets such as Bitcoin. We previously discussed this topic, generally (https://anthonyspark.com/help-i-dont-have-an-executor-for-my-will/), but what about Bitcoin?

Whether it’s because your friends and family lack knowledge, or because you don’t want to leave behind stress or drama, there are many reasons why so many Bitcoiners feel they don’t have anyone to name as their executor.

Your Family and Friends Don’t Understand Bitcoin

Your family and friends don’t understand bitcoin

You are afraid that when you pass, they will lose your Bitcoin. They don’t understand custody or any basic security protocols (OPSEC).

Another worry is that your family and friends will dump it, and immediately turn it into cash. They might fall for the hype that it is bad for the environment or actively believe it’s a “ponzi scheme.”

Or they may just be completely clueless; never heard of Bitcoin.

You Don’t Want to Burden Your Bitcoin Friends

You don’t want to burden your bitcoin friends

Maybe you have friends in the developer/Bitcoin community who are technically savvy enough, but you’re not close enough to ask them to take on this big job. Appointing an executor requires trust, and executorship is a burdensome job (lots of time and work).

Besides, Bitcoin may only be a small portion of your entire estate. I’d guess that most technologically advanced folks will get SUPER frustrated by the archaic parts of probate. As we know, probate includes lots of phone calls, faxes, standing in line, all without many apps or elegant solutions. Your friend who is used to cutting edge technology probably won’t want to stand in line to close your bank accounts with a physical signature. They’ll be ripping their hair out and looking for a way to do it online!

You Don’t Want to Cause Disputes Among Your Family and Friends

You don’t want to cause disputes among your family and friends

Even if you have family members or friends who can do the job, the rest of your heirs (who don’t understand Bitcoin) may have a million questions, suspicions, and doubts. The heirs’ lack of Bitcoin knowledge, compared to the executor, will breed suspicion of the executor. Your executor will probably be frustrated with the constant questions and doubts.

When all the heirs and executors know each other and there is distrust, it can ruin relationships, cause resentment, and tear families apart. It’s easier for a completely independent executor to weather that storm.

You Can’t Find a Suitable Service

You can’t find a suitable service

Most technically knowledgeable custody service providers (Casa, Unchained) have great inheritance guidance, but, to my knowledge, they don’t offer executor services. Their advice is to talk to your attorney.

You can also find someone like myself.

Or you can look for a bank to serve as an executor. However, banks have high liquid asset requirements. Most Bitcoiners who are self-custodied probably don’t trust the banks anyway…

Do Any of These Situations Apply to You?

If any of these situations apply to you, your best solution may be hiring a professional Bitcoin executor. Some of the benefits we offer:

  1. We have a fully staffed office available to handle all the various burdensome tasks that come with being an executor.
  2. We are focused on and committed to staying up to date on Bitcoin custody, OPSEC, and other need-to-know issues surrounding Bitcoin inheritance.
  3. Choosing an independent executor, instead of friends or family, can help prevent drama and disputes, since a professional executor is a neutral and unbiased party.
  4. We’re bonded and carry malpractice insurance to cover any wrongdoing as executor. This provides an additional layer of protection you wouldn’t get when working with a loved one, friend, or even a trusted financial planner or accountant.

How Do You Appoint a Professional Bitcoin Executor?

Name us in your will or trust

Name us in your will or trust

Just tell your estate planning attorney that you appoint Anthony Park as executor. In most cases, using estate planning software yourself is fine, too.

Next, schedule a call with me to make sure we’re a good fit. Then send us a pdf copy of your fully signed will/trust so I know I’ve been formally nominated.

After that, we will have annual check-in calls to stay in touch.

Nominate Us as Executor After Someone Has Died

Nominate us as after someone has died
After someone has passed away, the heirs may realize that person owned Bitcoin and they become intimated. Even if I am not named in the will or trust, there is a process for naming me post-death. It requires a little more work, but in most situations, we can work with the court and get appointed as executor even after death. The heirs can rest assured that we will now handle everything for them.

In review: just because your executor knows about Bitcoin now doesn’t mean they will still have knowledge of the ever-evolving process when you pass away. Even letters of instruction for your executor can become outdated fast! The best solution is to hire an independent professional executor who is committed to staying up to date on Bitcoin.

Probate (can apply to Bitcoin)

To learn more about executorship in general, check out my book, “How to Hire an Executor,” available on Amazon. Or you can call us and we’ll be happy to speak with you.

I’ve received more and more questions on this topic, and I am actually slated to speak at a the Adopting Bitcoin conference in El Salvador. Hopefully, I will meet some of you down there and I’ll be happy to answer your individual questions.

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E287 How Long Does Probating Bitcoin Take in New York

E287 How Long Does Probating Bitcoin Take in New York?

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How long does probate take in New York if the estate includes bitcoin? As we talked about in  a prior blog How Long Does Probate Take in New York, generally probate takes 15 months or longer; sometimes up to 3 years. Those numbers are actually on the lower side, because everything is more delayed these days.

Here we will discuss how a new-ish asset like bitcoin may add some delays.

How long does it take to become executor of a New York estate with bitcoin?

Typically, it takes about 3-6 months to file and get the court paperwork naming someone as executor. The reasons for the delays are:

  1. Collecting documents;
  2. Court delays; and
  3. Hearings before the court will decide who should be executor.

Even with bitcoin added to the mix, this step of the probate process will remain about the same. The only area where bitcoin would make any difference is the estimated value of estate on the probate petition. The executor may have trouble pinning down how much bitcoin the decedent had. Also, because bitcoin is a newer hot topic, the knowledge that the decedent had bitcoin could attract greedy heirs. “Hmm, Uncle Joe had bitcoin; maybe I should contest his will,” etc.

How long to settle an estate with bitcoin in New York?

Typically, it takes 15 months to 3 years to settle an estate. Settling an estate means the executor collects assets and pays debts and taxes to get the net amount to distribute to the heirs.

Of course, after 2020, everything has slowed down. Probate is currently taking much longer than mentioned above. Then, if you add a newer asset like bitcoin, a few more months may be added to the process.

The first reason is because of bureaucracies. Even traditional banks and brokerages are not great at handling decedent’s estates. It’s a constant game of phone tag. New bureaucracies (exchanges such as Binance, Kraken, Gemini, Coinbase) will probably struggle with processing the death claims. They may not yet know what they are doing, because they don’t have a well-oiled machine for this kind of process.

The next possible cause of delay is if your decedent held his own keys and own wallet. Taking custody of self-hosted wallet and transferring it to secure multi-sig estate wallet could be time-consuming. The executor would need a lot of education to know how to handle it. It may be wise to appoint an executor who is familiar with both probate rules and bitcoin custody.

Another cause of delay for the executor is deciding whether to liquidate the bitcoin (convert it to dollars).  With other assets, you want to covert the assets to dollars as quickly as possible to avoid the risk of price fluctuations. But bitcoiners tend to be hardcore and may specify that they want the bitcoin (not dollars) to go to the heirs.

Lastly, taxes add time to the process. Besides estate tax, figuring out the capital gains tax can be daunting. Even just filing a regular income tax return with bitocin may cause your tax preparer and examiner to conduct additional research on the rules. As we discussed previously, getting tax clearance tax a long time, even without bitcoin.

How long to close an estate with bitcoin in New York?

Generally, the final phase (closing the estate) is anywhere from 3 months to 1 year. Again, the executor collects documents (statements, transcripts, and proof of what occurred during the probate process). Then the executor prepares the accounting, which are the books and records in a specific format required by the court. Lastly, the executor has to deal with any contests or objections to the will. Dealing with a contested will can add months to the final phase.

So, when the executor collects documentation of the assets, how does he document bitcoin acquisition? You can’t call a bank and ask for a ledger. You might be relying on screenshots. It’s not even clear if you can rely on the exchanges; you may have to reference the mempool.

How does the executor document bitcoin sale? Hopefully the sale was made on the exchange, and you can document it that way. After a sale, how does the executor protect himself and ensure the heirs that the bitocin didn’t lose value?

If you have an inexperienced person putting together an accounting and the court doesn’t accept it, much more time will be added.

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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E283 5 Stages of Probating Bitcoin

E283 5 Stages of Probating Bitcoin

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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

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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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