If you died tomorrow would your family inherit your bitcoin, altcoins, and asset-tokens? The answer depends on you. While legally, the answer is yes, if your passwords, passphrases, and key locations die with you that probably won’t happen. Without those things your crypto-assets will be inaccessible. Like gold coins buried in a meadow; your family may know the treasure exists but they’ll never be able to access it.
Before bitcoin, altcoins, and asset-tokens had “real” value, maybe this wasn’t a big deal. However with bitcoin’s current valuation exceeding $6 billion USD, ethereum exceeding $1 billion USD, and asset-tokens being developed with millions of venture capital funding, simply losing these assets is no longer an acceptable outcome. Not for you, not for your heirs.
But estate planning isn’t fun. Mortality. Succession. Who gets what. It’s easier to ignore, postpone, and delay thinking about these things. However, unlike many other assets, there are no fail-safes with these coins and tokens. When your assets are held by a bank (or any third party), a court can simply order the bank to give those assets an estate executor (the person who controls the distribution of assets) or even directly to named heirs. But with assets like bitcoin, a court order is meaningless. Not because these assets are outside of the legal system, as some say, but because there is no one to order. Without access to private keys, no one can comply. It’s a matter of technology, not will.
Historically, we’ve ignored succession planning because the risk was too great. In order for our bitcoin to pass to our heirs, we’d have to give them access to our wallets and private keys. But that would give them equal control, with the power to take the assets at anytime. Or more likely, the power to get hacked, causing both of us to lose the assets. Today there is a better way. We are now designing systems that allow those we love to securely access these assets when we pass. But not before.
Using a combination of multisignature addresses, hardware wallets, open source software wallets, and policy controls, we’re now able to design systems that can provide complete control to the individual but divided control in case of emergency – like death, coma, or brain injury. And while these are things we don’t want to think about, we need to do it anyway. A few hours spent planning today could mean millions for your family later.
Designing Your Plan:
Step 1: Figure out what you have and what you need to protect. Make a list of your total current holdings, where they’re held (wallets, exchanges, etc) and the corresponding current value. It’s best to do this step offline, as this is sensitive information.
Step 2: Separate your assets into tiers. Decide how much you want to keep easily accessible, like petty cash, and how much to keep in long-term storage that you’re unlikely to touch for years. There may be one or more intermediary tiers between these two extremes.
Step 3: For each of the tiers, develop a plan with the technology, people, and process that ensures a careful balance between security, ease of use, resilience (backup), and survivability (estate planning). Each tier will have a different balance, for example you might use a single signer mobile wallet for your petty cash but for long-term storage you could use a multi-signature software solution that integrates with your favorite hardware wallet.
- Start by thinking about what you’re currently using. What do you like about it? What’s not working for you?
- Do some research on software and hardware wallets. Look at the company websites and look at app reviews. What features seem interesting? Test a few different wallets. For bitcoin, look for wallets that are BIP 32, 39, & 44 compliant so you’ll be able to easily switch to a new wallet if you need to.
- Don’t make things too complex. Too many passwords, devices, encryption phrases, and pins can make the system unusable and more importantly it can lead to loss. Try to find a good balance between security and ease of use.
- Multi-sig as Multi-factor. Many people don’t realize that you don’t necessarily need another person to use a multisignature address. You can design your own structure using keys from different devices (like your laptop + your mobile device + a hardware wallet) and achieve multi-factor security while maintaining complete control.
Step 4: Decide who you want to inherit each tier and exactly how that will happen. Estate distribution is governed by the national and state laws of each jurisdiction. Unless you make a plan that considers these laws, your plan may end up being thwarted by the courts. If you have an estate plan, make this part of it. If you don’t, speak to an attorney to make sure things will happen the way you want them to. Using the technology alone, even with advanced transactions like CLTV, may not be enough to ensure your wishes are respected.
- Who gets what? Do you want one person to inherit everything? If you want more than one person or organization to get a share, use percentages instead of hard values (10% not 10 Bitcoin).
- How will it happen? Do your heirs understand this technology? Can they create and provide their own addresses for transfer? Or will the assets be liquidated to fiat currency that will be distributed to your heirs?
- Regardless, who will help your heirs through the process? If you don’t know, that’s ok, but it’s worth considering these issues.
Step 5: Test your plan. Test each tier using a very small-value transaction to initialize and simulate a recovery-from-backup. Ensure you can actually execute your plan as designed. This means testing every aspect of the plan – the technology, the people, and the process.
- If you’re using a multi-signature solution, be sure that every signing combination works. Be sure that you have backups and that they work too.
- Test from the perspective of your heirs too. What will they need to recover if you’re not around to help? Write down what they’ll need so that you can be sure to backup all of the information they’ll need.
Step 6: Implement your plan. Move the remaining assets into your selected tiers.
Set reminders in your calendar to test again in six months. At that time you should review your overall plan too.
- Test at least once a year, every year.
Step 7: Store backups. Store your backups in geographically-diverse, secure, access-controlled locations. Many people use bank vaults, fireproof safes at home, and/or attorneys or accountants.
- Don’t store all of your backups in the same place or with the same people.
- Never store backups from the same multisignature address in the same place.
- Store a copy of your estate or succession plan too.
Most people know they need an estate plan, especially for assets like these. Most people have lots of excuses why they haven’t gotten it done yet. Maybe you don’t have the technical or risk management skills to build and execute a plan yourself. If that’s you, then hire someone who specializes in these things to help you. Maybe you’re waiting for that new feature to come out to make things easier. If that’s you, know there’s always a new feature coming out. Delaying for new features means delaying forever. Maybe you don’t like thinking about these things. If that’s you, you’ve probably stopped reading already. If not, you’ve made it through an entire article discussing these things, you can make it through a few hours of planning too.
There’s no reason for these assets to die with you. A simple, well-executed plan can ensure your assets survive but only if you actually build it. Start planning today.
About the author: Pamela Morgan is an attorney, educator, and entrepreneur who has been working exclusively in the bitcoin and blockchain industry since early 2014. She is a widely respected authority on multi-signature governance and legal innovation using digital currencies. Pamela is one of the few attorneys whose knowledge and understanding goes beyond legal theory; she actually uses these technologies everyday. She’s authored numerous “how-to” articles and is known for delivering engaging, practical presentations about her work to audiences around the world.
In addition to her law practice, Pamela is the CEO of Third Key Solutions LLC. Third Key works with clients to design and test asset protection plans, including high-value estate planning, internal corporate governance plans, and disaster recovery plans. Occasionally, Third Key will provide backup key storage as well, as part of a non-controlling multisignature process. Pamela is also a board member of the CryptoCurrency Certification Consortium (C4) a non-profit industry standards organization, where she serves as the Director of Education.