E258 Bitcoin Estate Planning for 2 of 3 Multisig
As the default recommended multisig quorum, there must be lots of 2 of 3 multisig holders out there. So let’s make sure your 2 of 3 multisig also works as well upon your death as it does while you’re alive.
Three things to think about: who has your third key; access to keys 1 and 2 upon death; and consider a 2 of 4 multisig.
Who has your third key?
Your best candidates are a custody service, a professional executor or lawyer (who also understands bitcoin custody and opsec), or family and friends.
Ideally, this keyholder will have an ongoing understanding of both bitcoin custody and security, as well as probate and estates. This means someone will keep up to date as technology and best practices evolve, and not just a fleeting understanding.
We discussed in depth “who should hold keys as part of your bitcoin inheritance plan?” in E256.
Access to keys 1 or 2 upon death
Presumably, while you’re alive you have sole access to keys 1 and 2. So how will your 3rd keyholder get access to one of your keys upon your death?
One of the benefits of multisig is that you don’t need such extreme security measures. Why? Because even someone gets one of your keys, they’d still need to get another key to be able to access your bitcoin.
So how to make sure a second keys is available upon your death? A few ideas:
- Share a full seed phrase with a family or friend, who would share with your 3rd keyholder upon your death
- Give a hardware wallet clone to family/friend, who would share with your 3rd keyholder upon your death
- Store a copy of your seed phrase or a hardware wallet clone in a safe deposit box
- Write a full seed phrase in your will/trust
All of these brainstorm ideas trade some security to increase the chances your estate will actually be able to access your bitcoin upon your death.
Consider 2 of 4 (or more) multisig
2 of 3 multisig means your 3rd keyholder must somehow get access to keys 1 or 2 (your keys) upon your death.
In our experience, too many things go wrong and go missing upon death. And not just bitcoin. Far less esoteric things like bank accounts, atm cards, birth certificates get lost in the shuffle and chaos of probate
For that reason, I’d prefer to have a quorum of keys ready immediately upon death. For example, a custody service such as Unchained Capital or Casa has key 3, and a professional bitcoin executor (me) has key 4.
I prefer this setup because keys 3 and 4 are immediately ready, and we can still fall back onto keys 1 or 2 as backups for redundancy.
What are the drawbacks of 2 of 4 versus 2 of 3?
- Setting up is a bit more complicated
- While alive, validating receive addresses may be more complicated
- And non-2 of 3 multsigs currently standout on the blockchain, and are therefore less private. But Taproot should solve this.
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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