E206 How to Set Up a Bitcoin Revocable Trust

E206 How to Set Up a Bitcoin Revocable Trust

Cryptocurrency (such as Bitcoin) is a new and unique asset. It’s sort of like cash, personal property, and intellectual property all in one. You need to plan for this type of asset in a different way than you would for your bank or brokerage account.

If you want a revocable trust for your bitcoin, you’ll need both a legal plan and a technical plan.

What to Include in Your Bitcoin Estate Plan?

If you want your trustee to hold bitcoin, you can’t rely on the same old boilerplate trust language. You’ll need to tweak a few things for your legal plan to work.


Opt-out of the prudent investor rule

Most trustees must follow the Prudent Investor rule, which (roughly) says the trustee may be liable for losses if he doesn’t invest the trust portfolio according to legacy investment principals. For example, 60% equities, 30% bonds, 10% cash. This doesn’t work for Bitcoin, since most people still consider it highly speculative. So a bitcoin revocable trust must include language opting-out of the prudent investor rule.

Access to devices and logins

What to include in your bitcoin estate plan?

Make sure to include language that gives your trustee access to your computers, devices, and logins. Without this, your trustee may technically be violating privacy laws.

Keep it flexible

It is important to keep your Bitcoin estate plan flexible since cryptocurrency continues to evolve.

Bitcoin in a Living Trust

With a traditional bank, you’d rename your account so that the trust owns it and not the individual. For example, you’d rename your personal checking account from “John Doe,” to “The John Doe Trust.”

But this won’t work if you hold your bitcoin on a centralized exchange. Currently, exchanges don’t open accounts for trustees. Nor do they offer beneficiary designations. So, to make a bitcoin trust, you’ll need to hold via a digital, hardware, or paper wallet where you control your keys.

Bitcoin in living trust

Think of your wallet as personal property, like artwork and other collectables that don’t have a deed or other record of ownership. One way to prove transfer of ownership for personal property is to sign a gift or assignment deed from yourself to your trust.

What Happens to the Bitcoin Trust Upon Your Death?

Now onto your technical plan: how to give access to your trustee when you die.

One solution is to “shard” your seed phrase and break it into chunks. For example, give half of the words to your lawyer, then give the other half of the words to another trusted person. Only upon your death will these two people be able to connect with each other to complete the seed.

A component of those plans could be a “dead man switch.” A dead man switch is where you routinely do something (ex. press a button) to indicate you are still alive. If you fail to press the button or miss two button presses, then it is presumed that you are dead. An email containing seed phrase then goes to your trusted people. (This is not a good plan, since it stores your seed on a ‘hot” device, the email server)

What happens to the bitcoin trust upon your death?

You could also give your seed to your trusted people in sealed envelopes. If this is worrisome, you could tell them to send you pictures to show that the envelope is still sealed (not ideal, just brainstorming here!)

We have worked on several Bitcoin revocable trusts, and these are the types of situations we encounter. It is exciting for us to learn about cryptocurrency and work with our clients to protect these valuable assets.

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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E202 Bitcoin Risk of Theft vs. Risk Loss

E202 Bitcoin Risk of Theft vs. Risk Loss

Bitcoin is currently a popular topic. Here, we are discussing the risk of theft verses risk of loss with these types of funds, specifically why that matters in the context of estate planning. We are by no means experts in this subject, but we’ve done our homework.

Estate planning for Bitcoin can feel like you are in a Divinci Code movie, with secret codes and memorized phrases. It can feel like a treasure map, compared to your traditional banking.

There is so much advice out there online telling you to take some extreme measures to prevent hackers and thieves from plundering your stash. However, you have to make sure you don’t overboard, at the expense of increasing your risk to another type of catastrophic loss, simply losing your Bitcoin!

Estate Planning for Bitcoin

Estate planning for bitcoin

One of the most common ways of holding your bitcoin is on “hardware wallets.” That means that you have a device, not connected to the internet, that has access to your key (the fancy word for your secret password). One way to look at it is that it’s like your ATM pin. The only difference is that you can visit a bank to reset your pin, but when it comes to bitcoin, no one can help you recover it. We’re not talking about a simple passcode with 7 to 8 letters; we’re talking a combination of 24 words that will allow you access to your bitcoin (also called a seed phrase).

In terms of security, you don’t want to leave this phrase accessible to anyone. The internet goes to great lengths to tell you how to keep this secure. They suggest never taking a photo, which is typically stored on your computer, phone, or cloud. This also goes for storing it on your computer. Again – hackable.

They suggest a handwritten note. Which in itself can be problematic. Paper is fragile. Not to mention, have you ever put a note in a “safe” place? A place that’s so safe even you can’t find it? There in lies the predicament. That’s quite a conundrum. One copy can get lost, while a few copies can be misused. Why we don’t have all the answers for storing not losing your phrase, we are here to compare the bigger risk – someone hacking your bitcoin and stealing it or you simply misplacing your phrase and losing it. Based on which is the bigger risk is how you should plan accordingly.

How Much Bitcoin Is Stolen?

How much bitcoin is stolen?

According to Casa, one of the bitcoin custody firms out there, 1.6 million Bitcoin has been stolen of all time, out of 18 million total. The vast majority of these thefts have occurred by hacking big companies, as hackers are going for the big score. This also includes Ponzi schemes and fraud. For example, someone says they will buy Bitcoin for you with $100,000, but instead buys a Lamborghini.

We believe that this number is underreported. Not everyone reports it when their bitcoin is stolen, as they may believe that there is nothing that can be done to recover it.

How Much Bitcoin Is Lost Forever?

How much bitcoin is lost forever?

Let’s take a look at the statistics and compare lost vs stolen. By “lost” we mean that you’ve done such a good job of hiding your passcodes, that you cannot access the bitcoin. According to Chainalisys about 20% (or 3.7 million of 18 million) has simply been lost. That is more than twice the amount that has been stolen.

This number may be a little high, because Chainalisys may include super inactive accounts. However, even if you remove those accounts, the stats are still much higher than the amount of Bitcoin that is stolen.

As you decide to hold and you are learning how to use secure codes, keep these stats in mind. It is twice as likely that you will just lose your Bitcoin by your own doing compared to it being stolen. If you are that worried about having your second piece of paper hidden somewhere, it may be worth the risk of someone finding the second paper compared to you losing the only piece of paper.

When planning for your estate, you have to decide how you will leave these passcodes to your beneficiaries. There are a lot of ways, and they all come with their own risks. A family member may not be able to retrieve your access codes if given a treasure map to “find” the password. You have to balance the risk of simply not being able to access your bitcoin with the risk of having it stolen.

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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