How to set up a bitcoin inheritance plan

bitcoin unchained inheritance

First published: 01/26/2022
| Last updated: 01/17/2023
| -- min read

One of the most frequent concerns Unchained clients have is inheritance—making sure their bitcoin passes properly at their death. Your partnership with us through an Unchained vault can be instrumental in assuring possession of your bitcoin is transferred safely to your family. Let’s take a look at how inheritance works and how Unchained can help.

Understanding inheritance: 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 actually 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 which 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 multisig nature of Unchained vaults.) In this situation, the thief has possession of your bitcoin, but does not have valid title. As a result, if you know the identity of the thief, you can pursue both 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 when it comes to 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.

How to set up bitcoin inheritance planning with Unchained

A tech product that simply distributes your private keys at your death may make you feel secure in handling possession of your bitcoin, but it will do absolutely nothing with regard to passing clear title. To set this up, you first have to treat bitcoin just like any other asset, and establish who will receive legal entitlement to your bitcoin by consulting an attorney.

1. Consult an attorney to legally establish your will

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.

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.

2. Consider living trusts and other estate planning devices

Living trusts are a common alternative to a will for passing assets to family members at death.. They are a special type of trust that allows you to maintain ownership over your assets while you are still alive. The living trust only becomes operational at your death.

Living trusts can often increase privacy (as in many cases the terms of your will may become public at your death) and also make distribution of assets, including bitcoin, smoother.

If your attorney draws up a living trust for you as part of your estate plan, let us know. At Unchained, we can title a vault or vaults to your living trust. By holding your bitcoin in a vault properly titled to your living trust, you can ensure the bitcoin pass according to the trust terms at your death rather than as part of your probate estate.

Unchained will work hand-in-hand with your trustee (or successor trustee) when it comes to any required movement of bitcoin. If the beneficiaries wish to continue using Unchained for self-custody, we’ll help them set up new vaults and securely transfer the bitcoin there.

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The same applies if your estate plan includes more sophisticated tax planning devices (mostly applicable to estates over $20M), such as GRATs, GRUTs, charitable remainder trusts, FLPs, or dynasty trusts.

3. Ensure your executor can access at least one of 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.

As always, the top priority is making sure your hardware devices, seed phrases, and PINs are secure. Once secure, the next step is to ensure that your executor is informed of all or one of their locations. Upon your death, they will need to be able to recover at least one hardware device (with PIN) or seed phrase.

If your estate plan is based around a living trust, it would instead be a successor trustee that would need that information.

4. Unchained works with your executor

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 will be able to move your bitcoin to the appropriate beneficiaries without Unchained, should they choose.

On the other hand, if your executor or successor trustee needs technical assistance or is only able to access one key, Unchained is here to help.

All they would need to do is email or call Client Services, and the Unchained team will be there to guide them through the rest. An executor would need to provide Unchained with documentation of their appointment from your local surrogate or probate office, exactly as they would need to do in order to dispose of your real estate and other financial assets. In the case of a successor trustee, trust documentation showing the identity of the successor trustee along with a death certificate would instead be required.

We have designed this verification process to be extremely rigorous, ensuring that this facility cannot be used to request a signature from Unchained in any other circumstances.

We would strongly recommend that each of the beneficiaries maintains an Unchained vault to receive the distributed bitcoin from the executor, so that they retain the same top-tier multisig security. However, the funds can be distributed to any standard bitcoin wallet that the beneficiary chooses to use.

Your lifelong financial services partner

No matter what inheritance or estate planning devices you may implement, the Unchained team is available as a bitcoin guide not only for you, but also for your loved ones when you are gone. Reach out to our concierge team today to get started with an Unchained vault.

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.

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