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
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
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.
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.