How to set up a bitcoin inheritance plan

One of the most frequent concerns we hear from bitcoiners is about inheritance—ensuring their bitcoin passes properly at their death. Inheritance can be a daunting topic, but we all must consider it eventually. While each bitcoin inheritance situation is different, here we’ll look at how bitcoin inheritance works and five key considerations to get started.

Video walkthrough

1. Understanding title vs. possession

There are two sides to the inheritance equation: possession and title. Possession is self-explanatory and refers to the ability of your beneficiary to access your assets (which, in terms of bitcoin, means having control over the private keys). Possession alone, however, does not create valid title. Title is the legal entitlement to own the coins.

To understand the distinction, imagine someone breaking into your home and stealing a backup seed phrase that gave access to all of your bitcoin. (In this hypothetical, you’re not an Unchained client, as Unchained clients are protected from losing their coins in this way through the nature of Unchained vaults based on multisig.) In this situation, the thief has possession of your bitcoin but does not have valid title. As a result, if you know the thief’s identity, you can pursue civil and criminal action against them.

This hypothetical situation would be legally identical if the thief had stolen any private property of yours—not just a backup seed phrase. This is the most important thing to know regarding inheritance and bitcoin: bitcoin is not at all unique, legally speaking—it’s subject to the same concepts of possession and title. And like any other asset, if you own it at death, bitcoin passes pursuant to your will. The executor named in your will is responsible for taking an inventory of your assets (including but not limited to bitcoin), discharging your debts, and distributing the remaining assets to the beneficiaries named in your will.

2. Consult an attorney to legally establish your will or trust

It is critical that you take the time to consult with an attorney in the state where you reside to have your will and other estate planning documents drawn up. It is your will and other estate planning documents that function to properly pass title to your bitcoin to your beneficiaries, as well as establish who will manage the transferral of your estate—the executor.

Alternatively, you may want to work with an attorney to set up a living trust. Living trusts are a common alternative for passing your assets to your heirs in the event of your death. These trusts allow you to maintain ownership over your assets while legally establishing your beneficiaries. A living trust does not impair your control over your assets during life.

Living trusts have many benefits, but the most notable is that they can often help protect your privacy. When properly set up and funded before death, they typically allow your assets to pass to your loved ones outside the public record. They can also make the distribution of assets smoother and can be great when used in combination with services like Unchained collaborative custody.

Any inheritance planning which covers only the possession side of the equation while ignoring the title is likely to create more problems than it solves, as it can result in your intended beneficiary in possession of the coins being ensnared in endless lawsuits from other parties seeking those coins.

One thing to note: While it can be helpful for your estate planning attorney to have bitcoin knowledge, because bitcoin is not legally unique, it’s not strictly necessary for this step.

3. Ensure your executor or trustee can access your keys

While only considering possession transfer is a recipe for disaster, it’s still true that the bitcoin-specific challenges in estate planning lie in the realities of physical possession transfer.

For this, you need to consider how to ensure your loved ones gain possession—or access—to your bitcoin when you’re gone. This can vary depending on how you’re securing your bitcoin. Either your executor or trustee will be responsible for administering your assets, so it’s your job to ensure that that executor or trustee has physical access to your bitcoin keys when you’re gone. 

If you use a standard singlesig wallet, this would mean you need some means of providing the executor or trustee with information about how to access your bitcoin keys, but while you’re still alive, sharing information about a singlesig self-custody setup is risky. 

Bitcoin multisig can help here. Multisig lets you set up a collection of keys that must be used in combination with one another for bitcoin to be spent. For example, you could create a 2-of-3 multisig where you have three total keys; two are needed to sign a transaction. This means that someone with access to just one key cannot spend your bitcoin alone, but could help spend your bitcoin. 

This opens up the ability to share a key (or backup of the said key) with an executor, trustee, or other trusted third party to be used to sign a transaction at the time of your passing. 

4. Ensure your executor or trustee knows what to do with your keys

Finally, having access to your private keys is not enough for your loved ones to gain possession: Your executor or trustee must also know what to do with those private keys. For this reason, it may be a good idea to choose an executor or trustee who is already familiar with bitcoin. Doing so can minimize their learning curve and headaches while minimizing the chances that they could make a mistake. 

If your executor or trustee is already familiar with bitcoin, or even more specifically, how your self-custody setup works, they will still benefit from detailed instructions for handling the transfer of possession.

If you’re setting up your own inheritance plan by yourself, you’ll want to have simple documentation detailing your security model and how your loved ones can orchestrate the moving of funds. Upon your death, if your executor or successor trustee is technically savvy and you have provided them with the location of both of your keys, they can move your bitcoin to the appropriate beneficiaries without the help of a third party, should they choose.

But this is another place where Unchained and multisig collaborative custody can help: Our team of experts can walk your executor, trustee, or even beneficiaries through the whole process upon your death, never requiring that you give us complete control over your bitcoin. Check out the Unchained Inheritance Protocol if you want help with the bitcoin possession transfer process.

5. Bitcoin inheritance tax: Bitcoin is property

One of the most common questions people have about bitcoin inheritance is what their loved ones’ tax obligations will be. Again, while this varies widely by jurisdiction, in the U.S., bitcoin is treated as property for tax purposes. The U.S. federal government applies an estate tax of up to 40% on taxable estates exceeding a certain threshold, which changes yearly with inflation ($12.92 million in 2023). 

In addition to federal estate tax, your state may impose its own estate tax or inheritance tax, or even both. If you’re approaching an asset threshold that would make federal or state death taxes an issue, consider consulting with an experienced attorney to devise strategies for removing taxable value from your estate before death.

Bitcoin is a generational asset

Bitcoin is a generational asset, and we should all be thinking about how to pass it on to the next generation securely. Each individual’s bitcoin inheritance plan will vary greatly, and therefore, it’s essential that you create a plan that suits your specific needs. To learn more about retirement and inheritance as it relates to your bitcoin wealth, check out the webinars in our YouTube playlist.

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This article is provided for educational purposes only, and cannot be relied upon as tax or legal advice. Unchained makes no representations regarding the legal consequences of any structure described herein, and all such questions should be directed to an attorney of your choice.