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
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.
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)
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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