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?
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
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?
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.
We’re trying something new – If you’ve enjoyed our bitcoin blogs, we’re working on adding a link below for bitcoin tipping. Any small amount will motivate us and give us confidence that people care about the topic!