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Bitcoin Inheritance


Inheritance. For most of us, it's not a priority but it will be a concern eventually.

We want to ensure our loved ones are taken care of after we kick the bucket.

It's somewhat straight forward with fiat money and common assets (home, investments, property, etc). They typically involve a third party such as a will, some lawyers, maybe a trust fund and someone to manage it all. 

But with cryptocurrency, it's a bit less straightforward. It is financial self custody. No one is holding your money but you. Third parties are non-existent (unless you're actually using a custodial service to hold or manage your coins).

Below are some ways we've heard of people setting up the logistics for their loved one to inherit their cryptocurrency. It is not financial nor legal advice. There isn't one particular way to pass on your digital assets, nor is there a standard like with fiat. It is up to you to determine what works for your particular situation.

Usually, one would give all the information needed to recover their funds (including the seed) to a family member. Additionally, instructions would provided to ensure said family knew exactly what to do, step-by-step (we would recommend walking them through the instructions beforehand and have them practice recovering a wallet — even going as far as making this an annual ritual to practice and keep it fresh).

The concern of is you're not only trusting this person, but trusting them to take the same security precautions as you would (despite not having much experience). This can be problematic. We've heard of family members falling for scams and giving away the seed.

So, how do you prevent this? You've got options: 

Use a Passphrase

passphrase is different from your 12-24 word seed phrase. It is an optional, advanced security feature that allows you to create a brand new wallet by adding an additional word or phrase to a seed. It is a part of the BIP39 standard and is supported by many wallets.

A passphrase allows you to potentially introduce a third party. In addition with providing the seed/instructions to your family members, you can leave your passphrase (with instructions how to activate the passphrase function) in your will or with lawyer in which that information that will be passed on in the event of your death. This way, if your seed is compromised by your family members down the line, your funds will still be safe since you need both the seed AND passphrase to access your wallet.

"Split" Your Seed

By "splitting" your seed, I mean requiring multiple seeds to recover your wallet and distributing those seeds between a handful of trusted parties. Trezor specifically has a function for this called SLIP 39 or Shamir Shares. With Shamir Shares, you can generate multiple, different 20-33 word seed phrases and your wallet can only be recovered with ( n ) of ( m ) total parts (e.g. 2 out of 3, 3 out of 5, etc.). Thus, you can do something like give your spouse a seed, your child a seed, and yourself a seed where only two seeds are needed to recover your wallet. So in the event of your passing, your child and spouse can still recover your wallet their two seeds.

Multi-Signature Wallet

Warning: This is advanced and the logistics are more complicated.

This is similar to the method above, but instead of "splitting" the seed, you can think of sort of like "splitting" the wallet itself. With a multi-signature wallet, you can share your wallet between multiple parties (like a shared bank account). But as the name suggests, multi-signature wallets requires an ( x ) number of signatures or authorizations to make any sort of transaction (i.e. send coins). These authorizations would be signed via multiple private keys.

What does that even mean and how does this help inheritance?

Let's do an example: You, your spouse, and your child share a multi-signature wallet. You've set up the wallet to require only two signatures to make a transaction.

You give yourself, your spouse, and your child each the authorization to make those transactions by giving them their own private keys.

Thus, in the event of passing, your spouse or child can continue using the wallet with the remaining private keys.

These keys can be stored on a mobile device, hardware wallet, desktop, etc. and can be recovered by their own individual seed. (So you'll have three seeds in total with one going to your spouse and one going to your child)

Again to reiterate, this can be logistically complex. If we had to recommend someone to walk you through this all, it would be Casa.

Final Thoughts

There are some more technically advanced methods (such as using a dead man's switch i.e. having to check in/show activity every ( t ) days/months/years, else some sort of data (or coins) will be sent to your inheritors) but to my awareness, there is no "user friendly" way to do this (maybe one day with smart contracts).

Google does has an inactive account manager which will send an email after lack of activity. We wouldn't recommend sending a seed (it violates the #1 rule of keeping your seed offline). But, possibly recovery instructions or a passphrase could be beneficial.

The simpler the better. Complexity throws a wrench in logistics.

Over all, the downside for all of these methods is that you will trusting multiple parties (including those who will be inheriting your funds).

The possibility of colluding together without you (or being scammed collectively) is still there.

But in our opinion, the best way to handle inheritance is to keep your inheritors educated — not only to understand what to do in the event of your passing but wallet seed and security, how to make transactions, etc. Keep them involved so they know just as much as you do.

You won't have to worry if they will be taken care of; they'll know how take care of themselves