Mar2024 - BTC | Future of Inheritance

Important Considerations for Bitcoin Inheritance

What are the important considerations for Bitcoin inheritance planning ?

1. Possession vs. Title: Transferring possession of Bitcoin (i.e., the private keys) to heirs is different from establishing legal title to the Bitcoin. Proper estate planning through a will or trust is crucial to ensure the legal title passes to beneficiaries.

2. Executor/Trustee Access: The executor or trustee appointed in the estate plan must be able to access the Bitcoin private keys. Using multi-signature setups can facilitate this access without fully relinquishing control during one’s lifetime.

3. Executor/Trustee Knowledge: The executor or trustee should be familiar with Bitcoin self-custody and the process of transferring possession to minimize mistakes.

4. Bitcoin as Property: In the U.S., Bitcoin is treated as property for tax purposes. Substantial Bitcoin holdings may be subject to federal and state estate taxes, which should be planned for with the help of an experienced attorney.

One need’s to note that each individual’s Bitcoin inheritance plan will be unique, and it’s important to create a plan tailored to one’s specific needs to ensure a smooth transfer of this digital asset to the next generation.

An in-depth overview of Bitcoin multi-signature (multi-sig) wallets and a platform like Sparrow, Caravan, Liana, Nunchuk, Casa, Onramp, Theya and Bitgo can provide collaborative custody solution can help users manage their Bitcoin holdings securely.

It is important to understand and differentiate key differences between possession and legal title when it comes to Bitcoin inheritance. One needs to keep in mind that while ensuring your loved ones can access your private keys is important, it is equally crucial to legally establish the title of your Bitcoin assets through a will or trust.

One can try and test the process of creating a 2-of-3 multi-sig wallet using Sparrow Wallet/Theya/Nunchuk very easily. An important highlight is the importance of the wallet configuration file, which serves as a “treasure map” to rebuild the multi-sig wallet in other software like Caravan. This ensures users are not locked into a single wallet provider and can maintain full sovereignty over their funds.

How you design your collaborative custody model is worth exploring in detail before embarking on that journey. Your personality and approach, the platform vault holds one of the three keys in a 2-of-3 multi-sig setup, while the user controls the other two. This provides several benefits:

1. Ongoing support and guidance for setting up and maintaining the multi-sig wallet.
2. The ability to help users spend funds if one of their keys is compromised or lost.
3. Assistance with inheritance planning, allowing the user's Bitcoin to be passed down to their beneficiaries without the need to trust a third party with full access.

One needs to attemot and self demonstrate how a user can download the wallet configuration file from their platform vault and use it to independently reconstruct the multi-sig wallet in other software, such as Sparrow or Caravan. This ensures complete sovereignty and the ability to verify transactions on their own Bitcoin node, if desired.

This article emphasizes the importance of addressing Bitcoin inheritance and avoiding single points of failure in one’s self-custody setup. Multi-sig technology, combined with platform’s collaborative custody service, is presented as a way to achieve this while still maintaining a high degree of control and flexibility over one’s Bitcoin holdings.

Steps in Designing a Self-custody journey 1. upcoming educational webinars, 2. Sovereign recovery 3. Practical steps to DIY by using popular platforms like Unchained/Theya/Casa