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.

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E222 Beneficiary Designations for Cryptocurrency Exchanges

E222 Beneficiary Designations for Cryptocurrency Exchanges


One of our podcast listeners asked: “Is it possible to open a Binance account that is funded by a trust account? If so, does that by default make that particular Binance account a trust account with the beneficiaries named on the bank account that is used for funding it?”

Great question! To answer it, we need to break it down a bit:

What is a trust account?

What is a trust account?

There are a lot of different names for a trust account at a bank: ITF (in trust for), Totten trust, TOD (transfer on death), POD (paid on death), and other similar names. Basically, it is beneficiary designation that is added to your bank accounts.

It’s the same concept as life insurance policy: when you completed the forms, you most likely named who gets the account when you die. They become the beneficiaries on this particular policy.

A trust account at a bank is not the same as creating a Trust for estate planning purposes. I believe the question here is: “Does the Binance account take on the beneficiary designations that are on the original bank account?”

Do beneficiary designations transfer with funds?

Do beneficiary designations transfer with funds?

The answer is NO. If you send money from your Citibank bank account to a Vanguard account to buy some stock, the Vanguard account does not automatically inherit your Citibank beneficiary designations. You’d have to fill out forms at Vanguard to name beneficiaries.

Beneficiary designations do not follow the dollars. That’s the case for moving from bank account to crypto exchange, as well.

How to name beneficiaries on cryptocurrency exchange

How to name beneficiaries on cryptocurrency exchange

What is a cryptocurrency exchange? The big ones like Binance, Coinbase, Kraken, Gemini, are like E-Trade or Robinhood for cryptocurrency. And as of now, you can’t name beneficiaries on the account.

A main reason is most likely due to the fact that the laws are not set up for that yet. Therefore, cryptocurrency exchanges don’t offer that feature. So, you will need to make a Last Will and Testament or move your crypto off the exchange to a wallet that can be governed by your revocable trust or your will.

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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E218 Bitcoin Letter of Instruction to Heirs

E218 Bitcoin Letter of Instruction to Heirs


Every bitcoin estate plan must include a simple, easy-to-understand letter of instruction to your heirs or executor. If you don’t, all of your hard-hoarded bitcoin may disappear.

Explain Bitcoin to a Child

Explain bitcoin to a child

Keep it super simple! Write the letter like you are explaining bitcoin to a child. Do not give the whole history of bitcoin, block chain, sound money, etc. Just write enough to get them past this treacherous stage: handling new and complex assets while grieving.

In your letter, write about:

  1. High-level concepts;
  2. Major pitfalls to avoid when working with cryptocurrency; and
  3. Immediate to-dos or checklist.

Bitcoin vs Banks

Most of your heirs understand banks and brokerage accounts. So, explain how bitcoin is different. Explain that cryptocurrency can be lost forever if handled wrong, unlike dealing with a bank. There is no password recovery.

Bitcoin vs banks

If your heir is a little more financially savvy, explain that bitcoin is like a bearer instrument. Bearer instruments are certificates where whoever holds them owns the money. (Cash is essentially a bearer instrument). When you give someone your bitcoin keys, that person has complete no-consequence access to your funds. No one will check their ID or verify their signature.

Where You Store Your Bitcoin

In your instruction letter, explain where you store your bitcoin keys. You should have a rough inventory of what you’re holding so your heirs know what to look for. Most bitcoiners have a little bit on an exchange (Coinbase, Binance, Gemini, etc.). You may also have some hot wallets online (apps, browser extensions, etc.). Lastly you may have cold wallets, which are not connected to the internet at all (hardware or paper certificate).

It is important that your instructions are in a letter, not in your will. Your holdings could change, and you won’t want to update your will for every change.

Where you store your bitcoin

Next, explain how the heirs can access the items on your inventory.

Exchanges are simple to explain, because they are more similar to banks than anything else. You heirs will send the death certificate and letters from the court and the exchange will turn over possession to the heirs.

Wallets are a little different. A good solution for a hardware wallet is to give a clone wallet to an executor or heir and give the PIN to someone else. Or you can split up a seed phrase and pass phrase among different heirs and they must collaborate to access your bitcoin.

Bitcoin letter of instruction example

If you’re reading this, I’m either dead or incapacitated. If I’m not dead or incapacitated, PLEASE STOP READING NOW.

This letter is about my Bitcoin and other cryptocurrency, and how to access them. I won’t even try to explain everything about Bitcoin here, but I want you to know enough to not get robbed or lose everything.

Some important high-level concepts:

(1) Cryptocurrencies can be lost, forever! There’s no FDIC, or bank customer support to stop payment or reverse a bad transaction. Once it’s gone, it’s gone.

(2) There’s no password reset or “recover lost password.” If you lose the passwords (known as seed phrases, I’ll explain below), Bitcoin and other cryptocurrencies are gone forever.

(3) Bitcoin and other cryptocurrencies are “bearer” assets, like cash. Whoever holds it, owns it. So if you hand someone the seed phrases, it’s like handing them an untraceable bag of cash.

Nervous enough? No worries, Just follow these instructions, and you should be fine.

On Exchanges

I hold some Bitcoin and other cryptocurrencies on the following exchanges:

– Binance.com/Coinbase.com/Gemini.com

This is the easy part: just ask my executor or probate lawyer to contact the exchange with an original death certificate and letters testamentary, and they’ll give further instructions on how to transfer my Bitcoin and other cryptocurrencies.

Now it gets harder.

On Hardware Wallets

I also hold some Bitcoin and other cryptocurrencies on hardware wallets. What’s a hardware wallet? It looks like a large USB thumb drive, and my passwords/seed phrases are securely stored inside the device. You need my PIN code to access my hardware wallet.

My hardware wallet (and duplicate copies) are located:

– Describe locations

You should automatically receive an email with the PIN within six months of my death (I set up a “Dead Man’s Switch”). Just remember: anyone who has both my hardware wallet and PIN has full, irreversible access to the Bitcoin and other cryptocurrencies inside.

Seed Phrase

If you cannot find or access any of the hardware wallets, you can still recover my Bitcoin and other cryptocurrencies using my “seed phrase.” This string of 24 ordered words is the secret password to control the funds, even without the hardware wallet device.

I’ve given the first 12 words to these trusted people: Bart, Lisa, and Maggie

And the second 12 words to: Moe, Larry, and Curly

Contact whoever you need to complete the 24 word seed phrase. And remember: whoever has the full 24 word phrase has full, irreversible access to the Bitcoin and other cryptocurrencies inside.That’s it.You probably won’t be able to navigate all this without some help.But at least you now know how to find and protect the hardware device and seed phrases while you figure out the rest.

Also, consider choosing an executor who understands bitcoin custody. 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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E216 Bitcoin's Unclaimed Property Problem

E216 Bitcoin’s Unclaimed Property Problem


Bitcoin is getting more mainstream every day. But new bitcoiners need to be aware of the unclaimed funds problem. Hopefully we can contribute to a solution.

How do Unclaimed Funds Work, Generally?

The first level of prevention of loss is password recovery. This is not part of unclaimed funds, but for banks and other custodians.
If your bank account is dormant (meaning no activity for a long time), then the bank must make attempts to contact you. If there’s no contact after several attempts, then the bank sends your money to the State to hold in the unclaimed funds department. You and your heirs can recover from the State any time.
This is how banks protect their members from catastrophic loss of assets.

Why Bitcoin Is Different

Why bitcoin is different
When you own your bitcoin, you own your own keys (self-custody). If you keep your bitcoin on an exchange, there are some similarities to a regular bank account. Meaning, you have a way to recover your password and there is a similar unclaimed funds procedure as discussed above.
If you are a real bitcoin enthusiast, you probably own your bitcoin. In this case, there is no one you can call to recover your password. You are responsible for it, and there are some measures you need to take to make it work.
If your bitcoin wallet is dormant for years, no one will attempt to contact you. It just stays in zombie mode. Bitcoin is a public ledger, meaning we can all see how much is in a given wallet, we just don’t know whose wallet it is. There are wallets sitting with huge amounts and there is no one to check on them.
If you lose your keys (or fail to deliver them to your heirs), they are gone “forever”. In other words, your wallet becomes stuck with no way to get into it.

How to Prevent Lost Bitcoins

Since bitcoin is not governed by the unclaimed loss protocols, there is not a safety net.
How to prevent lost bitcoins
If you think someone knows how to manage your crypto after your death, it won’t happen without leaving instructions.

How do you recover your password?

Don’t share your keys. You can split up your seed phrase or add a passphrase. You can give a copy of the hardware wallet to one person and the PIN to another person.

Another option is a decentralized dead man’s switch. A dead man’s switch is a button that needs to be pressed in order to prevent something from happening. The act of pressing the button is proof that you are alive. If you fail to press the button as scheduled, then the process starts for your funds to transfer to your beneficiary. For example, the PINs, phrases, or locations of those keys will be sent to people who will combine the information to access your account.
It’s important to remember that it is not safe to store seed phrases anywhere online (even split up).
A centralized dead man’s switch with a company could go away at any given time. A decentralized dead man’s switch would be some sort of open-source project that does not rely on one server or one company. A solution that preserves the ability to control your assets is decentralized and secure. For now, split hardware/pin or seed/passphrase are the best solutions we have.
What are some better solutions? I would love to hear from you.
What will bitcoin look like in the future? Will we have bitcoin “banks” to protect your money and provide quick easy access? How will they remain decentralized and let you keep your sovereignty over your money?

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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E214 Transferring Bitcoin Upon Death


Let’s review a real-world case study of a client’s plan to transfer his bitcoin upon his death. This looks like an elegant solution, so let us know if you see any major red flags!

Cloned wallets and sharded seeds

The client’s plan focused on clone wallets and sharded seeds.

The plan starts with two clone hardware wallets. A hardware wallet is like a minicomputer that plugs into your USB drive, but it is not fully connected to the internet or the computer. It keeps your private keys/secret codes offline while allowing you to interact in online transactions. When you clone your hardware wallet, you make duplicates of it. Each clone wallet is password protected.

Cloned wallets and sharded seeds

The client gives one clone wallet to his executor. He gives the other clone wallet to his sister (who is an heir). Neither the executor nor the sister has the PIN to the wallet. They just have the device. They will receive the PIN upon the client’s death either by dead man’s switch or from another heir.

Then the client shards his seed phrase. Remember the seed phrase is 12 or 24 secret words that you can use to recover your cryptocurrency if something happens to your hardware wallet.

The client has divided his 12 words into two chunks of 6. The client gives half of those seed words to his executor. The executor won’t receive the second half of the words until the client dies.

Upon death, the executor will receive the PIN code to his clone wallet and then he has access to the cryptocurrency. The back-up plan is that the sister receives her PIN code from another heir or dead man’s switch. Then she has access to the cryptocurrency. In the event of hardware failure, the executor will receive the second half of the seed words to recover the hardware wallet.

Risk of theft vs catastrophic loss

Risk of theft vs catastrophic loss

Plans need to balance risk of theft vs. risk of catastrophic loss. You are twice as likely to lose your cryptocurrency than to have a hacker steal it from you. It is more complicated than memorizing a PIN code. You don’t have the safeguard of calling a bank to reset your PIN. It is also easy to over-complicate things and make it too difficult for your heirs. There might be security holes in your plan, but are they big enough to merit increasing risk of catastrophic loss?

Redundancy, and balancing risks

Using multiple hardware wallets is tangible and understandable. A hardware wallet is a device, and it needs a code to access the cryptocurrency. If hardware wallets fail, then you can always shard the seed phrase.

Redundancy, and balancing risks

By using cloned wallets, there is a slight increase for the risk of theft. In this case, the client accepted the increased risk of theft to decrease the chance of his cryptocurrency disappearing upon his death.

While this plan isn’t perfect, I like it. Please pick it apart – I want to hear your feedback. We might not be hard-core “bitcoin-ers,” but we do know what happens when people die! Being an executor is not easy. If you add cryptocurrency to the executor’s job, it’s definitely harder. It will be interesting to learn more as people die holding cryptocurrency.

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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E210 How to Administer a Bitcoin Trust

E210 How to Administer a Bitcoin Trust


In Episode 206 we talked about how to set up a trust. This time, we’ll talk about how to manage a bitcoin trust as the trustee.

How to Transfer Bitcoin to Trustee

How to transfer bitcoin to trustee

As we discussed in Episode 206, there are a couple of ways to transfer control of the trust to the trustee. These are the dead man’s switch, sharding, and even old-school envelopes.

The dead man’s switch requires the trust maker to hit a button at regular scheduled intervals. Failure to hit the button presumes your death, and an email containing your seed phrase gets sent to your trusted people. (This is not a good plan, since it stores your seed on a ‘hot” device, the email server).

You can also “shard” your code and break up your seed phrase into chunks. You would give these chunks to different trusted people who will come together after your death to put the pieces together.

How to Invest the Trust Assets

Now that trustee has control, how should the trustee hold and manage the Bitcoin? This depends on the decedent’s wishes.

Sometimes, the decedent’s wish is to liquidate to fiat, convert to cash, then invest it as a normal trust.

But most bitcoin holders probably want their trust to continue to hold bitcoin on behalf of the heirs. The problem is that there is no such thing as a fiduciary account on the centralized exchanges. That is, there’s no way for a trustee to open an account at Coinbase, Gemini, etc. Those exchanges only allow individuals to open accounts, not trusts. So make sure you choose a trustee who knows how to handle a digital or hardware wallets and safeguard the trust keys/seeds.

How to invest the trust assets

If your trustee holds the Bitcoin in trust, he must manage his own wallet. He must also maintain security and anti-loss protocols as if it were his own. If the trustee dies with the keys or seed phrases, that’s not good. The trustee needs to have something in place to avoid catastrophic loss in a secure way. It makes sense for the trustee to have a sharding with the successor trustee or a backup attorney.

Bitcoin Trust Fund Distribution to Beneficiaries

Since cryptocurrency is so volatile, it is best to distribute the bitcoin in-kind. Meaning, instead of the trustee selling the Bitcoin and giving the cash to the heir, just distribute the actual bitcoin to the heir. This way, the beneficiary bears risk of if/when to exchange to fiat.

Bitcoin trust fund distribution to beneficiaries

The problem with this approach is that not all beneficiaries know how to receive or manage cryptocurrency. Beneficiaries should have some skill with cryptocurrency and have their own wallets/digital addresses.

If you want to learn more about how a professional executor or trustee 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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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 to Hire an Executor.”