A letter of instruction will likely fail for your bitcoin inheritance plan and should have only a marginal role in your plan, if any.
Search for “bitcoin inheritance” and you will probably find lots of people advising you to write a letter of instruction for your heirs. We talked about this and even provided a sample letter of instruction. Now, having spent a bit more time delving into different approaches to bitcoin inheritance, we’re de-emphasizing a letter of instruction.
Note: this applies to self-custodied bitcoin, not held through a third-party.
Educate your heirs
A letter of instruction is a subcategory the general approach: I’ll just educate my heirs! Some folks set up a fairly complicated bitcoin inheritance plan, but assure themselves, “I’ll make sure to educate my (spouse, son, etc.) on self-custody.”
Like any other educational endeavor, you must have an eager and willing student, or it just won’t stick. You can educate them on self-custody as hard as you want, but unless your heir is self-motivated to learn, it probably won’t work well. They may appear to understand in the short term to appease you, but that “knowledge” will leak out of their heads almost immediately. Think back to when you started your Bitcoin journey: if you weren’t that interested and someone started discussing self-custody and hardware wallets, your eyes probably glazed over.
You could blame the lack of self-motivation to learn on the ever-evolving status of bitcoin, but this is not the case. We see it all the time with other legacy assets like art, collectibles, and especially small businesses. Take, for example, a father who spent his life building his profitable small family business to pass on to his children. Sometimes the heirs aren’t interested in running the family store after dad passes. No matter how much that father tries to teach them how to run the business, they just don’t care enough to learn.
You don’t want to rely on your heirs’ knowledge of Bitcoin to make sure it passes properly, because self-custodied bitcoin that doesn’t have a transfer of custody upon your death is basically lost bitcoin.
Letters don’t work with even legacy assets
Even if you are the Shakespeare of letters of instruction, you still won’t be able to write a perfect letter to make your heirs understand how to successfully gain custody of your bitcoin. We’ve seen it with even legacy assets: letters of instructions don’t really help.
Why not? Your situation and your assets change over time, and people overestimate their ability to keep these letters up to date. It’s a lot to remember and to actually update your letter every few months.
On the flip side, most heirs (and most humans) are terrible at reading, comprehending, and following instructions. Some people struggle with IKEA furniture instructions… Just imagine how hard it will be to understand a letter of instruction especially after the death of a family member or friend. On top of that, your letter probably won’t be one page long; it will be several pages of difficult things for an amateur to comprehend.
It’s not because your heirs are dumb; it’s the emotional circumstances. We see heirs struggle with even basic assets that they are super familiar with (bank, brokerage accounts, etc.). Self-custody bitcoin would be a HUGE hurdle for a non-bitcoiner to deal with, especially relying only on your letter of instruction.
Bitcoin inheritance treasure hunt
A letter of instruction is too often a “treasure map” to various seed phrase shards or wallet locations. Turning it into a treasure hunt is a terrible idea. It’s an even more complicated and worse version of a letter of instruction. We’ve seen treasure maps and letters of instruction fail for simple things like the keys to a storage locker or the location of important original documents. What happens if things get moved around or your letter isn’t up to date? It’s a dead end more times than not.
For these reasons, we highly discourage relying on a treasure map for any part of your bitcoin inheritance plan. Of course, you can still have a letter of instruction, but it should not be a featured piece of your estate plan. At a later date, we’ll discuss what should be the features of your bitcoin inheritance plan.
In the meantime, check out my book, “How Probate Works,” available on Amazon. It will help you understand the steps of probate before you further complicate it with Bitcoin.