What happens to my bitcoin when I die?

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 standardized procedures for transferring inherited assets after death.

TradFi facilitates access to the deceased’s accounts and transfer of assets to the estate. There is even State-sponsored unclaimed/abandoned trust programs Which creates a safety net in case there are any problems along the way.

Bitcoin has none of this.

There is no shutdown, support desk or helpline available for wallet recovery instructions to transfer cryptocurrencies to your next of kin.

the Bitcoin blockchain network He doesn’t know you’re dead

Unlike you and me, Bitcoin is not dying.

Inheritance planning for digital assets

This post is not legal advice, and the content below is intended to help prepare you when having a conversation with a qualified professional licensed to practice in your jurisdiction.

When you die, your estate appoints a court-appointed executor and gives them the legal authority to make decisions about inherited assets during the approximately 18-month probate process.

The total balance of your assets including bank accounts, real estate, securities, and property (such as Bitcoin) minus debts (mortgage, credit, medical bills) are subject to taxes by Uncle Sam.

Bitcoin is classified by the IRS as personal propertysuch as works of art or real estate. It’s an asset with clear Tax table.

Failing to prepare and dying without providing even basic instructions to your heirs is the most minimal thing you can do in terms of Bitcoin.

Self-sovereignty is vacated by will.
Privacy is sacrificed by public court records documenting your assets.
The value of the money stock is reduced by taxes.

Create a revocable trust to transfer Bitcoin Estate planning is becoming increasingly popular due to privacy controls and tax advantages compared to dying intestate (without a will) or transferring your cryptocurrencies solely through a last will and testament.

An amendable (revocable) legal estate plan that contains detailed instructions for transferring custody of cryptocurrencies to your heirs is complicated, but setting it up is easier than you think.

Note – Contact us (team@stratus.io) if you have any questions or to schedule a consultation.

How will my family access Bitcoin when I die?

Although 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.

Identifying, recovering, storing and distributing your cryptocurrency assets stored in hot and cold wallets has multiple points of failure that require documentation and instructions.

Identify your Bitcoin Accounts are the first step an executor takes once they agree to administer your estate.

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 custodian of your Bitcoin and own it Custom processes in place to grant executors of the estate access To your account(s).

Access to hot wallets On your mobile device, computer, browser add-on, or website, there may be security restrictions that require the port or authorized party (AP) to locate and access the following:

computer (password)
Email account(s) (username + password)
Mobile devices (password/passcode unlock)
2FA (Password)
Web/Desktop/Mobile App (Username + Password)
12 or 24 word recovery seeds and seed phrases
PIN code for cold storage device
Additional cryptographic signatures (eg – multi-sign 2 of 3)
Documents such as a death certificate, a letter of appointment from the court naming an executor, a power of attorney, a state inheritance tax waiver, a certificate of domicile, a certificate of guardianship stating the successor guardian and a letter of authority (LOA).

Your access Self-preserving wallet device for cold storage May require a PIN, password, or recovery seed of 12 to 24 words.

Hide your cold wallet and seeds of recovery It’s part of self-custody, but you should have a plan to securely disclose this sensitive information to your heirs.

Pro Tip: These 12-24 word recovery seeds can be used to rebuild your wallet(s) on any device even if the original is lost or defective. Secure seed transfer is a critical component of your succession plan to ensure that only authorized parties have access to your Bitcoin.

Once the port has access to the account(s) or access point specified in your estate plan, the encryption must be secured. Your estate plan documents should contain detailed instructions for moving your collection to a new wallet or to a central exchange (CEX), such as Coinbase or Binance, for liquidation.

Examples of directions for your crypto estate plan:

Instructions for secure storage of access methods for each account until the cryptocurrency is sold, including redemption seeds and optionality Cold wallet passphrase.
Instructions for Specific physical and digital encryption To mitigate attack vectors that may expose your private keys such as phishing and social engineering Bitcoin dust And spyware.
If you’re concerned about spyware, for example, you could instruct the AP to purchase a new computer to create a wallet to receive Bitcoin and sign transactions.
Provide instructions for creating or confirming a transaction across different blockchains, clearing an account balance, or verifying receiving addresses. This may be second nature to you, but you should consider the technical capabilities of your grieving heirs.
If your beneficiaries are crypto newbies, do you plan to review best practices e.g UTXO standardization, Rotation of key and titleor Dollar average cost of bitcoin?

The goal is to protect your assets and move them efficiently without increasing the risk of loss or causing undue stress.

Pro Tip: If you do not select a custodian with cryptocurrency experience, appointing a professional executor for approximately 1-5% is an option to consider. You pay for peace of mind by offloading responsibility.

How to safely transfer Bitcoin to your heirs

Thinking about your death can be unsettling, which is why 89% of cryptocurrency holders worry about what happens to their stacks when they die.

15 popular ways to recover a Bitcoin wallet:

Instruction letter
Exchange account recovery
guardian (fidelity)
Safety deposit box
Shamir Secret Share (SS)
Individual signature
Single signature + passphrase
Multiple signature + passphrase (non-custodial)
Multi-Signature (Non-Trust) 2 of 3+ signatures
Set time for Bitcoin transactions
Multi-Sig (Third Party Guard Switch)
Duplicate hardware wallet hardware
Deadman switch
Custom solutions
Send seeds digitally

Revised Uniform Fiduciary Access to Digital Assets Act (Rufada) varies from state to state and determines how an attorney, fiduciary, or executor can access digital assets.

For more information, see our post covering Pros and Cons of 15 Ways to Transfer Bitcoin Upon Your Death.

As the cryptocurrency market matures, I expect other solutions to emerge e.g MuSig as a better alternative for Multi-Sig wallet recovery.

Best practices for digital legacy planning

Keep it simple, stupidKISS) – If your instructions or recovery method are too complex, you risk losing your Bitcoin. Remember that any instructions should be considered complex if you are passing Bitcoin to someone who has no experience with wallets, transactions, or cold storage.

education -There is a lot of information to process. Grieving family members who have no experience with cryptocurrencies may have difficulty following your instructions.

Train your closest relatives on how to use a cold wallet and create a transfer to the exchange.

Make a list of things not to do with recovery seeds such as:

Don’t take a picture.
Do not save files on a computer or device connected to the Internet.
Never give your seeds to anyone over the phone. No trustworthy person would ask for this.
Avoid writing the seed down or even saying it out loud.
Never tell anyone how much Bitcoin you have.

Pro Tip: Set up a small wallet so that you can perform the entire wallet recovery procedure with a trusted party. Education and training are of utmost importance. At Stratus, we offer a service to coach your heirs and help them reclaim their remaining cryptocurrencies in the transfer of ownership upon your death. We will also help you plan for a disaster or worst-case scenario such as the simultaneous death of you and all your heirs.

Consult a specialist – This post is intended to be educational and we do not provide legal, tax or financial advice.

There are plenty of qualified advisors to talk to you about the basics. Whether or not they have the cryptocurrency experience you need can only be discovered by doing your due diligence.

Be careful whose advice you buy, but be patient with those who give it.

Create an estate plan – As you can see from this article, the online cryptocurrency community places a lot of emphasis on technical methods for transferring Bitcoin recovery seeds and account access, but there is very little information on how to incorporate that into an estate plan.

It is necessary to have something legally valid to identify your assets/securities through secure instructions.

If you have any questions, please contact team@stratus.io

Pro Tip: Establishing a revocable trust has significant advantages over estate planning alternatives. Trusts also add a layer of privacy and redundancy to the hot and cold wallet backup recovery plan.

In summary:

Although some of us have waited longer than others to start accumulating, we are still early adopters because the value of Bitcoin will persist over a long period of time.

We approach market cycles with diamond hands and the conviction that Bitcoin adoption is inevitable. Our reward for taking action early is the creation of generational wealth by owning an immutable piece of an asset with fixed supply and growing global demand.

Wealth is not just the number of zeros or commas in your account balance.

Wealth ensures that your grandchildren will graduate from college without student loan debt.

Wealth is preservation, even if you are not around to enjoy it.

The mental and financial cost of not having an estate plan to preserve your legacy is 100% avoidable.

It is tragic when Bitcoin is lost because families cannot access or find digital real estate to distribute their inheritance.

Having at least a basic plan to transfer Bitcoin upon your death should be a priority if you care about your loved ones.

If all this sounds like a lot, 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: Stratos does not provide investment, legal or tax advice. All information in this article is for educational purposes and should not be construed as investment, legal or tax advice. The opinions expressed are those of the author for informational purposes and neither Stratos nor the author accepts responsibility for any errors, inaccuracies or omissions. Digital assets, such as cryptocurrencies or decentralized finance, present unique risks to investors. For investment, legal, tax, or other financial guidance, you should consult your own advisor.