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Bitcoin estate planning

Including Bitcoin and digital assets in your estate planning and your will ensures that your assets are distributed according to your wishes after you pass away. For instance, without a will, your estate will be distributed according to intestacy rules, which may not reflect your wishses. Moreover, Bitcoin and other cryptocurrencies present unique security challenges in estate planning. This guide helps you effectively include Bitcoin in your will and securely transfer it to your beneficiaries.

Importance of Including Bitcoin in Your Estate Planning

Given Bitcoin’s and other digital currencies’ rising value, it is crucial to include these digital assets in your estate planning. Unlike traditional assets, Bitcoin requires specific knowledge for access and transfer. Without proper instructions, your digital currency might be lost or your estate might incur significant costs and delays during recovery. Therefore, creating a bulletproof Bitcoin estate plan is essential for protecting your digital wealth for the beneficiaries of your estate.

Challenges of Including Bitcoin in Your Estate Planning

To effectively transfer Bitcoin, your executor must know how to access your digital wallet and transfer the assets. A lack of this knowledge can render the inclusion of Bitcoin or digital currency in your will pointless.

However, documenting access to these assets involves security risks, because you are creating the means for someone to either hack your wallets or gain access to them. Unauthorised access to your private keys or passphrases could lead to theft of your digital currency. Therefore, it is critical to secure this information properly.

Steps to Include Bitcoin in Your Estate Planning

Identify Your Digital Assets

List all your cryptocurrency holdings, including Bitcoin, Ethereum and other digital currencies. Specify where each currency is stored—whether on an exchange or in a digital wallet. Clearly detailing these assets ensures that your executor is aware of them.

Generally, we do not consider it wise to leave your digital assets on an exchange unless you have a reason to.

Choose a Knowledgeable Executor

Select an executor who understands how cryptocurrencies work. You can appoint more than one executor. Provide them with detailed guidance or consider appointing an executor who specialises in handling digital assets. The executor(s) must know how to securely access and transfer your digital assets.

Secure Access Information

Accessing Bitcoin or digital currency typically involves:

  • A digital wallet or device for “storing” digital currency
  • Private Keys: A unique string of characters granting access to your Bitcoin. Do not include your private key in the will. Instead, ensure your executor can obtain it securely through alternative means.
  • Passphrases/Seed Phrases: These are used to recover wallets and access funds. Store them securely and provide instructions for accessing them.

Provide Detailed Instructions

Access Instructions
Clearly outline how the executor can access the digital wallet:

  • Location of the wallet or digital currency
  • Location of Private Keys
  • Step-by-Step Transfer Process

Transfer Instructions
Include instructions to beneficiaries on how to receive Bitcoin. This may involve setting up their own digital wallets or taking possession of the original wallet and keys. Providing these instructions helps prevent confusion and errors during the transfer process.

Security Measures – Use a Digital Wallet

It is generally safer to store your Bitcoin in a digital wallet or cold storage rather than on an exchange. Cold storage, which keeps your Bitcoin offline, reduces the risk of hacking. Therefore, consider using hardware wallets for added security.

However, we understand it is still possible for hackers to access a digital wallet even without physical possession of the digital wallet, if they gain access to passcodes and passkeys.

Secure Storage of Access Information

Consider these methods for storing the access information:

  • Safety Deposit Box: Store your private keys, seed phrases, and other access details in a safety deposit box. This method ensures physical security and controlled access. Do not store these details on your computer.
  • Digital Vaults: Use encrypted digital vaults or services designed for storing sensitive information securely. These digital solutions provide an additional layer of security against unauthorised access.

Example Instructions for an Executor

Here is a sample set of instructions you might include in a document or letter to your executor, detailing how to locate, access, and transfer Bitcoin. Store these instructions securely and make them accessible only to trusted individuals.

Locate Access Information

  • Safety Deposit Box: Keys and access codes are stored in a safety deposit box at [Bank Name], Branch [Location]. The box number is [Box Number]. The key to the box is in my personal safe at [Location of Safe], combination [Combination or Access Method].
  • Digital Vault: Encrypted copies of the private keys and seed phrases are stored in a digital vault with [Service Name]. Access credentials for the vault are in the same safety deposit box.
  • Trusted Contact: For issues accessing the safety deposit box, contact [Trusted Person’s Name], [Relationship], at [Contact Information].

Access the Digital Wallet

  • Wallet Type: The Bitcoin is stored in a [Type of Wallet, e.g., Ledger Nano S, Trezor, or other hardware wallet].
  • Wallet Location: The physical wallet is in the safety deposit box, alongside the backup recovery sheet.
  • Wallet PIN: The PIN to access the wallet is [PIN], written on a card in the safety deposit box.
  • Recovery Phrase: A 12-word seed phrase is included in the document labelled “Recovery Phrase” stored in the safety deposit box.

Verify and Transfer Bitcoin

Verify Ownership:

  1. Connect Wallet: Connect the hardware wallet to a computer. Download and open the [specific wallet software] if not already installed.
  2. Verify Balance: Use the software to view the Bitcoin balance and confirm the amount available.

Transfer Process:

  1. Open Wallet Software: Open [Wallet Software Name] on your computer. Ensure it is connected to the internet.
  2. Access Wallet: Enter the PIN for the hardware wallet when prompted.
  3. Transfer Bitcoin:
    • Beneficiary Wallet Address: Obtain the Bitcoin address of the beneficiary. Confirm the accuracy of the address.
    • Initiate Transfer: Select the option to send Bitcoin, enter the beneficiary’s Bitcoin address, and specify the amount to transfer.
    • Confirm Transaction: Double-check all details before confirming the transaction. Sending a test amount (e.g., 0.001 BTC) can help verify the address.
  4. Record Transaction: Save a screenshot or record of the transaction ID for reference.

Handover of Remaining Assets

If a digital transfer of Bitcoin is impractical:

  • Physical Handover: Hand over the hardware wallet and associated access information to the beneficiary directly.
  • Documentation: Ensure the beneficiary receives detailed instructions on accessing and managing the Bitcoin.

Conclusion

Including Bitcoin in your estate planning requires more than simply nominating a beneficiary. You must provide clear and secure instructions for accessing and transferring the cryptocurrency. Selecting a knowledgeable executor, securing access information, and implementing robust security measures are essential steps in ensuring your Bitcoin is transferred effectively and safely according to your wishes.

Disclaimer:
We are not experts on storing and managing digital currency assets. The examples here are merely for illustration. Consultation with experts in digital currency management is necessary. This article contains legal content but is not legal advice. Readers should consult a lawyer before implementing any suggestions contained in this article.

By following these guidelines and preparing adequately, you can ensure your Bitcoin and other digital assets are protected and effectively transferred to your chosen beneficiaries.

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