Bitcoin Inheritance Planning
What will happen to your Bitcoin when you die?
Bitcoin is built to survive. If you believe in the potential of bitcoin, it’s reasonable to assume that this potential extends beyond one lifetime. While it can be difficult to think about our own mortality, it is essential to be prepared for it, especially when it comes to bitcoin. A significant amount of lost bitcoin is due to a lack of succession planning. In some cases, the person who died was the only one who knew where the private keys were stored, and the lack of clear communication can have devastating consequences. It’s important to plan for the future and have clear communication about your bitcoin and its storage.
This guide will give you some advice to create a bitcoin inheritance plan, so you can distribute your bitcoin after your death. These are the main goals:
- Allow your heirs to take possession of your bitcoin when the time comes, but not before.
- Minimize the risk of anyone to steal your bitcoin before you distribute them to your heirs
To achieve that goal, you need to write an access plan and let your heirs know about it. It will be a letter including the following information: who can help them, where to find the assets, which devices they should preserve, and where to find more information.
Keep it Simple
Bitcoin inheritance planning should be as simple as possible. Simplicity in inheritance planning can provide clarity and ease of execution for both the person creating the plan and their beneficiaries. Complex plans with multiple layers of instructions or conditions may be difficult to understand or carry out, increasing the risk of errors or disputes.
Access Plan
You will need to write a letter, an access plan, so all your heirs will know which assets you have and the instructions to access them once you die.
If you are not tech-savvy, it would be better to write this access plan with pen and paper. We assume that your internet-connected devices have a virus, or will have one someday. If you feel confident about your technical knowledge, you can write the letter on your computer, but not your keys or sensitive information. Just leave blank spaces for all the sensitive information and write it with a pen after printing the letter.
Here you can find a template of the letter with the access plan:
In this letter, it is advisable to remind your heirs about the sovereign qualities of Bitcoin. Tell them, that these assets aren’t held by a bank and mistakes can’t be fixed; the transfers must be done correctly or the funds could be lost forever.
Selecting Trusted Helpers
Probably, your heirs won’t have the technical level that you have, and they may need help to access and transfer your Bitcoin securely. Although it would be desirable if they did so that they can be as independent as possible. Consider if you want/can work on it during your lifetime.
So, it’s a good idea to designate at least 2 helpers. Two people can watch one another.
A perfect helper is trustworthy, highly technical, great at explaining complex concepts, isn’t afraid to ask questions, can self-educate and learn quickly, and has no interest in stealing your assets. Design people with strong values, and who are unlikely to develop an addiction to drugs, gambling, etc.
If you don’t have two people like that then think of lawyers and/or organizations that might be able to oversee the process. They need to be reasonably tech-savvy and should have some training on bitcoin. They are called “Fiduciary Helpers”.
Take into account that selecting an heir to be your helper puts him in a position of power over your other heirs, which may or may not be okay for your particular situation.
For each designated helper, your access plan should include:
- the full name
- a photo
- contact information: address, email, phone number, online profiles, etc
Contacting your helpers and letting them know they were selected is a good idea. So you have the opportunity to educate them about your plans and assets. The downside of letting them know is that if they are not trustworthy, they could use the opportunity to learn about your holdings and plan to steal them. So, you will need to consider how much information you share with your helpers.
Assets Inventory
In your access plan, you need to list all your devices, software, passwords, and backups needed to access your assets. Don’t forget to include the location of each item.
You don’t need to include the amount of bitcoin you have in each location, because that number can change during your lifetime.
If you have the proper backups, they won’t need to access your phone and computer to claim your assets.
Hardware Wallets
For each hardware wallet you own, you need to include instructions to access:
- the physical device
- the PIN
- the pass-phrases
- the seed phrases backup
All of them should be located in different places, to increase your security. The PIN, pass-phrases, and seed phases should have a reference to the hardware wallet they belong to.
Including a photo of the hardware wallet in your access plan is a good idea, so your heirs can easily locate it.
If you don’t have a hardware wallet yet, you can visit our website to compare the best wallets available:
Software Wallets
For each Software Wallet (mobile or desktop wallets) you own, you need to include instructions to access:
- the seed phrases backup
- the password/passphrase (if required by the wallet)
- the wallet software name and website to download
Exchanges
For each exchange you use, you need to include:
- the exchange name and website
- the credentials and instructions to access the exchange. Don’t forget to give them access to the 2FA.
Other Locations
It’s important to also include the instructions to access any location where you have Bitcoin, like tips services, Defi, paper wallets, Lightning Network node backups, etc.
Separation of Powers
If you are going to distribute the access plans and all your keys to other people, they will be able to misappropriate the assets.
So, instead of trusting a single person with the keys, you can divide the key material into pieces and require more than one person to come together to unlock your Bitcoin.
But please, don’t just split your seed phrase and distribute some of the words to each person. That’s not secure.
These are some good methods for dividing control
Multisignature
With Multisignature, more than one key signature is needed to transfer the asset. The most common multi-signature scheme is 2-of-3, where three signatures are designated as “authorized” and any two of those authorized signatures are required for a transfer.
Passphrase
Passphrase is an optional feature of some wallets that allow users to create hidden wallets. Passphrases serve as a function of second-factor protection of the recovery seed and are an ultimate protection against attacks involving physical access to the device or the recovery seed.
Most Hardware Wallets have support for passphrases.
You could distribute your seed phrase to one person and the passphrase to another. So, both keys are needed to access your wallet, instead of one.
Seed XOR
Seed XOR is a technique that consists of storing secrets in two, three, or four parts that look and behave just like the original secret. One 24-word seed phrase becomes two or more parts that are also BIP-39 compatible seed phrases. These should be backed up in your preferred method, metal or otherwise. These parts can be individually loaded with honeypot funds as each one is 24 words, with the 24th being the checksum and will work as such in any normal BIP-39 compatible wallet.
The Coldcard Mk4 and Coldcard Q hardware wallets implement this kind of split.
Shamir’s Secret Sharing
Shamir’s secret sharing (SSS) is a cryptographic technique formulated in 1979 by the Israeli cryptographer Adi Shamir. The essence of Shamir’s scheme lies in the ability to back up, share and recover a secret by breaking up the secret into multiple shares that are individually useless and leak no information about the secret or the scheme setup.
You can choose how many recovery shares you want to generate, and decide how many of them you want to use for recovery. Individual shares do not leak any information about the shared secret, as long as the number of compromised shares does not reach the required threshold. For example, if you use a 3-of-5 scheme and 2 of your shares get compromised, the attacker has no chance to reconstruct your wallet and cause trouble.
Applying Shamir’s secret sharing to your seed phrase is a good idea because it increases your security and also gives you the ability to better support inheritance planning. You can distribute the shares to different people or store them in different locations (and let your heirs know the locations).
Here you will find all the hardware wallets supporting Shamir Backup:
Which is the best option?
All the alternatives presented here are excellent options. According to the kind of wallet you use, you can pick one or a combination of them. You could use Shamir or Seed XOR + Multiple Passphrases. If you are a more advanced user, you could also use Multisig.
You can see more details about this topic on the following article:
Storage Location
It’s important that your access plan should be located separately from your key material (seed phrases, PINs, passphrases, etc)
You should store multiple copies of your access plan and key material in different secure locations, preferably waterproof, fireproof, and access-controlled.
Common secure storage options for home include a locking file cabinet, personal fireproof/waterproof safe, or a gun safe. Common secure locations outside the home include a bank safe deposit box, a vault in your hometown, a vault outside of your county or state, a vault overseas, your attorney’s office, your accountant’s office, a relative’s fireproof/waterproof safe, or a fireproof/waterproof safe at your office.
Here you have some good safe boxes:
Tamper Evident Seal
It’s important to use any kind of tamper-evident seal, so you will have a quick way to know if other people are peeking at your plans or key material.
You can buy some tamper-evident security stickers here:
Or maybe you could just buy these tamper-evident bags, which are also waterproof:
It’s important to sign the bag or the envelope you used so that you or your heirs will know if someone tampers with the envelope, for example, to read it or replace it with a new one.
Location Chart
You might want to keep a separate storage location chart and leave locations out of your access plan and key material. Keep it in a separate and secure location but remember your heirs will need access to this information too.
Educating Your Heirs
If you trust your heirs completely, they have enough age and are capable to understand technical concepts, then could be a good idea to educate them. You can teach them about your access plan and all the needed concepts to access your Bitcoin when you die.
Keeping your plan up to date
As time passes, things change: your assets, technology, relationships with your loved ones and helpers, and the quality of your storage locations.
You have to find the right balance between the effort required to refresh your plan and the urgency of the refresh. Creating a calendar reminder every 6 months could help you to regularly check if your plan needs an update or not.
It’s recommended to include the Last Update date on the access plan letter. Every time you update your plan, you refresh that date and replace the copy on your home. If your other locations are not close, you probably are not going to have all the access plan copies always up to date. Just let your heirs know about that, so they try to find the freshest version of your plan, before following the instructions of an old copy.
Dead Man’s Switch
A dead man’s switch is a switch that is designed to be activated or deactivated if the human operator becomes incapacitated, such as through death, loss of consciousness or being bodily removed from control.
Even though a dead man’s switch isn’t recommended for transferring your bitcoin, it might be useful to communicate information that’s not confidential.
These are some available options:
DeadMansSwitch.net
The deadmansswitch.net site allows configuring a dead man’s switch. It offers a free and a premium plan.
Google Dead Man Switch
Google has made the dead man’s switch a feature of Google accounts through the Inactive Account Manager feature. Once you set it up, Google gives you the option of deleting your account, allowing trusted people to download your data from some or all of the Google services you use, or simply sending a message to a trusted person. Here you can read more about that Google feature.
Jinca
Jinca prevents your assets from being lost when you are unable to access your bitcoin, lose your keys, or die.
- Configure your exchanges, wallets and PIN
- Set destinataries by providing wallets and percentages
- You will receive a notification on a provided frequency to check that you are OK
- If you are unable to answer the notification, your bitcoin will be sent to the configured wallets based on the percentages you assigned
Third-Party Services
There are multiple third-party services that, using the benefits of multi-sig, allow you to simplify your inheritance planning. We compared all of them, feature by feature, at our website:
Some examples:
Liana
Liana is a simple Bitcoin wallet with built-in loss protection and inheritance. With Liana, you can transmit your bitcoins to your beneficiaries after your passing, without sharing your own backup mnemonic. The Wizardsardine team can help you set up Liana, and assist your family with recovery.
Nunchuk
With a Honey Badger subscription, you can set up a Bitcoin inheritance plan. Non-custodial and private-by-design, Nunchuk ensures that your bitcoins can be safely passed on to your loved ones.
You can watch this video to see how it works:
Casa
Casa helps you secure your Bitcoin without wondering if you’re doing it right. Holding your own keys and safely taking self-custody. Their shared accounts and inheritance planning help you safeguard your digital assets for a lifetime and beyond with a seamless account transition to a loved one or heir.
Unchained Capital
Unchained Capital enhances security through easy-to-use multi-sig cold storage while also preserving your control over your assets. You retain sovereignty over your Bitcoin. You control two of the three private keys. Unchained holds a backup as your trusted co-signer
Sources
This incredible book from Pamela Morgan is a clear blueprint for inheritance planning for those holding cryptocurrencies, tokens, crypto-collectibles, and other crypto assets.
The expert Andreas Antonopoulos helped to write that book. He talks a bit about it in these two videos:
Pamela also offers a workshop here:
And wrote some interesting articles about this topic:
Here you can see Pamela at ETHDenver 2019
Another inspiring talk about this topic from Daniela Brozzoni
Visit our Website
With so many hardware wallets on the market, it can be challenging to choose the right one for your needs. That’s where our Hardware Wallet Comparison TheBitcoinHole.com website comes in. You will find the most comprehensive and honest resource for comparing the features of the top hardware wallets.
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