You may be wondering, ‘what happens to my Bitcoin when I die or become incapacitated’?
Short answer, nothing.
Banks and other traditional finance (TradFi) institutions have standard procedures for transferring inherited assets after death.
TradFi makes it easy to access the deceased accounts and transfer assets to the Estate. There are even state-sponsored unclaimed/abandoned fund programs that create a safety net in case there are any issues along the way.
Bitcoin has none of this.
There is no off-switch, support desk or help line available for wallet recovery instructions to transfer crypto to your next of kin.
The Bitcoin Blockchain Network is unaware of your death.
Unlike you and me, Bitcoin does not die.
This post is NOT legal advice and the content below is meant to help prepare you when having a conversation with a qualified professional licensed to practice in your jurisdiction.
When you die, your Estate names an executor to be appointed by a court and granted legal authority to make decisions about legacy assets during the ~18 month probate process.
The total balance of your assets including bank accounts, real estate, securities, and property (like Bitcoin) minus debt (mortgage, credit, medical bills) is subject to taxation by Uncle Sam.
Bitcoin is classified by the IRS as personal property, like artwork or real estate. It’s an asset with a straightforward tax schedule.
Failing to prepare and dying without providing even the most basic instructions for your heirs is the most Bitcoin Minimalist thing you can do.
Setting up a Revocable Trust to transfer Bitcoin is growing in popularity for estate planning due to the privacy controls and tax benefits compared with dying intestate (no will) or transferring your crypto solely through a Last Will and Testament.
An amendable (revocable) legal estate plan with detailed instructions to transfer crypto custody to your heirs is complex, but easier to set up than you think.
Ps – Reach out to us (team@stratus.io) with any questions or to schedule a consult.
Even though the blockchain doesn’t care if you die with your keys, your family does.
Future-proofing your Bitcoin inheritance plan requires time and attention to detail.
The identification, recovery, custody and distribution of your crypto assets stored in hot and cold wallets has multiple points of failure which require documentation and instructions.
A properly formed Bitcoin Estate Plan will contain a list of your online accounts and physical cold storage locations so the Executor knows where to look.
Centralized exchanges, like Coinbase, act as the custodians of your Bitcoin and have dedicated processes in place to grant the estate executor access to your account(s).
Accessing your cold storage self-custodial wallet device may require a PIN, password or the 12-24 word recovery seed.
Hiding your cold wallet and recovery seed is part of self-custody, but you must have a plan to securely disclose this sensitive information to your heirs.
Pro Tip: Your 12-24 word recovery seed can be used to recreate your wallet(s) on ANY device even if the original is lost or defective. Safe transfer of the seed is a critical component of your succession plan to ensure only the authorized parties can access your Bitcoin.
The goal is to protect and efficiently transfer your assets without increasing the risk of loss or causing undue stress.
Pro Tip: If you don’t select a trustee with crypto experience, hiring a professional executor for ~1-5% is an option to consider. You’re paying for the peace of mind by offloading liability.
Thinking about your death can be unsettling, which is why 89% of crypto owners are worried about what happens to their stack when they die.
The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) varies state by state and defines how an attorney, fiduciary or executor can access digital assets.
For more information, check out our post covering the Pros and Cons of the 15 ways to transfer Bitcoin when you die.
As the crypto market matures, I anticipate other solutions will emerge like MuSig as a better alternative to custodial Multi-Sig wallet recovery.
Train your next of kin on how to use a cold wallet and create a transfer to an exchange.
Make a list of things not to do with a recover seed like:
Pro Tip: Set up a small wallet so you can dry run the whole wallet recovery procedure with a trusted party. Education and training are of the utmost importance. At Stratus, we offer a service to train and assist heirs to recover crypto left to them in an estate transfer upon your death. We’ll even help you plan for a disaster or the worst case scenario like the simultaneous death of you and all heirs.
There are plenty of qualified advisors to talk you through the basics. Whether or not they have the crypto expertise you need can only be uncovered through doing your due diligence.
Be careful whose advice you buy, but be patient with those who supply it.
It’s imperative to have something legally valid in place to locate your assets/securities with secured instructions.
If you have any questions, please reach out to team@stratus.io
Pro Tip: Setting up a revocable trust has significant advantages over the alternatives for estate planning. Trusts also add a layer of privacy and redundancy to your hot and cold wallet backup recovery plan.
In Summary:
Even though some of us waited longer than others to start stacking, we are still the early adopters as the value of Bitcoin will play out over a long time horizon.
We HODL through market cycles with diamond hands and conviction that Bitcoin adoption is inevitable. Our reward for taking action early is a generational wealth creation thanks to owning an immutable piece of an asset with fixed supply and increasing global demand.
Wealth is not just the number of zeros or commas in your account balance.
Wealth is ensuring your grandchildren will graduate from college without student-loan debt.
Wealth is preservation, even if you’re not around to enjoy it.
The mental and financial cost of NOT having an estate plan to preserve your legacy is 100% avoidable.
It’s tragic when Bitcoin is lost because families can’t access or find the digital estate to distribute their inheritance.
Having at least a basic plan in place for transferring Bitcoin when you die should be a priority if you care about your loved ones.
If all of this sounds like too much, consider NOT transferring your Bitcoin upon death.
Random strangers on the network will appreciate your donation which will reduce the circulating supply.
Indecision is for losers.
Disclaimer: Stratus does NOT provide investment, legal or tax advice. All information in this article is for educational purposes and should not be interpreted as investment, legal or tax advice. The opinions expressed are those of the author for informational purposes and neither Stratus nor the author are liable for any errors, inaccuracies or omissions. Digital assets, such as cryptocurrencies or decentralized finance, present unique risks for investors. For investment, legal, tax, or other financial guidance you should consult your own advisor.
The post What happens to Bitcoin when I die? first appeared on Stratus Crypto.
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