How will your executor handle a Bitcoin winter (or crash) like the one we’re living through now? We’ll compare a few likely scenarios depending on who you’ve chosen as your executor.

But first, a few assumptions:

1. You’re a “maxi” (a Bitcoin maximalist – someone who really values Bitcoin in and of itself, and not just its conversion to dollars);
2. You want your heirs to inherit the actual Bitcoin you’ve accumulated, not just the fiat dollar value on your date of death; and
3. You believe Bitcoin’s value in dollars will probably be very volatile for several more years. You understand that even if it’s “down” during your probate, you want your executor to hang on to it.

So here are a few scenarios:

Professional executor, but doesn’t “get” Bitcoin

There are many attorneys and banks who are savvy in executorship and probate. In fact, banks have whole departments with trust officers that handle this. Once you find these experienced folks, do they have knowledge of Bitcoin? Maybe, but they probably have knowledge of crypto in general.

Bitcoin maximalists consider themselves separate from the rest of the crypto universe. If your professional executor has only a light understanding of crypto in general, they will associate Bitcoin with the current crypto crash. During a crash, can they withstand psychological pressure to sell? Probably not. That’s the most likely outcome with a professional executor that doesn’t understand Bitcoin like you do.

Maxi amateur executor

Say you chose your buddy who is a fellow maxi but has never been an executor before. He probably has similar values as you and wants to hold on for dear life (“HODL”). But, he has very little knowledge of the probate process or experience being executor.

If Bitcoin is going through a winter cycle during probate, the heirs may demand that he sell the Bitcoin so they can get their inheritance in cash. Can this amateur executor withstand threats of lawsuits, accusations of breach of fiduciary duty, and sob stories from heirs? Between dealing with that and also trying to HODL, it’s going to be a lot of pressure. If the executor doesn’t understand how to defend himself, he might be convicted enough to protect his own stack of Bitcoin. But he might give in to pressure from the heirs and sell their UTXOs so they leave him alone.

Understandably, you want your executor to be experienced with Bitcoin, but you also have to weigh whether the executor can withstand the pressure.

Professional Bitcoin Executor

Your best bet is to find a professional Bitcoin executor. Investor Michael Burry, from the movie and book Big Short, ran a fund holding money for other people. He shorted the real estate market right before the crash of 2008.

While the real estate market was doing well right before the crash, his positions were losing a ton of money. His investors wanted their money back and threatened to sue him. Burry kept saying no and told them to trust him. He even took technical steps to keep the investors’ money in place to prevent investors from withdrawing.

In the end, the recession happened, and all of those shorts exploded, allowing his investors to make 400 times their money. At the end of the movie, Burry sends out a one-liner email: “You’re welcome.”

In our estate scenarios of a Bitcoin winter, you need someone like Burry who is both convicted AND knowledgeable. You need someone who can carry out your wishes and do a probate-version of a side pocket to make sure he withstands the pressure and delivers the Bitcoin to your heirs.

I hope to fill a similar role, and hope others will, too. I have the experience as a professional executor, and I am beginning to see the light of Bitcoin values. While this topic is very specific, you can still learn about hiring a professional executor in my book, “How to Hire an Executor.”

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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

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

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

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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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

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

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 may 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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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?

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

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

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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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

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!

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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