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
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.
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.
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.