As bitcoin adoption continues to grow and as its value appreciates, bitcoin holders increasingly focus on long-term planning, including how best to plan for inheritance. Often the principal concern is ensuring that bitcoin is technically capable of being transferred to beneficiaries when the need arises, especially for those self-custodying bitcoin. But, there are important (and often overlooked) aspects of estate and inheritance planning that bitcoin holders should also consider when developing a comprehensive strategy. Most bitcoiners just want to make sure their loved ones know how to find their private keys and what to do with them when they do. At Unchained Capital, we’re working on tools and solutions that will help facilitate a more secure and seamless transfer from a technical perspective. Our platform, team and approach to custody, which is built on bitcoin’s native multisig, already helps clients more securely and easily plan for inheritance (contact us here) but we’re also working to deliver a more tailored solution dedicated to estate planning matters.
However, there’s a lot more to the planning equation than just private keys, and as part of our product research, we wanted to better educate ourselves on the full scope of the inheritance planning process to be in the best position to add value for our clients. Through our research process, we were introduced to Christopher Lamia who is a Certified Financial Planner (CFP) and a partner at Forum Financial Management, LP as well as Kenneth Devore, Esq who is an attorney specializing in estate planning in California. Both Chris and Ken have provided a wealth of knowledge, and we asked both to collaborate on the following article to help educate our client base on the range of inheritance planning considerations that individuals and families storing wealth in bitcoin should be thinking about. The article discusses basics of tax, estate and inheritance planning as well as high level considerations specifically relevant to bitcoin holders.
I want to thank Chris and Ken for contributing, and if you have any questions for either, their contact information is included at the end of this article. We hope you find this resource valuable and we’ll be following up both with additional content diving deeper into certain inheritance and estate planning subjects as well as releasing products and services at Unchained Capital that help meet the inheritance planning needs for all bitcoin holders. Best, Parker
Inheritance Planning on a Bitcoin Standard
Christopher Lamia, Kenneth Devore & Parker Lewis
One of the most rewarding aspects of wealth creation is the privilege of passing it on to future generations. The idea of passing on bitcoin to future kids and grandkids is a particular source of pride for many bitcoiners. Still, nobody likes to think about passing away or about the possibility of becoming incapacitated. It’s admittedly uncomfortable, but unfortunately this is a primary reason why so many people die without an estate plan. Dying without an estate plan can impose a serious cost to loved ones, both financial and psychological. In this article, we review estate planning basics to help you organize and prepare for the inevitable, and to ensure you leave your loved ones with a clear path forward. First, we’ll cover some definitional terms to set a baseline of knowledge and then help you start thinking through considerations specific to bitcoin holders.
What is an estate plan? An estate plan is a set of written documents that functions like a detailed instructional manual to third parties. In the plan, you nominate the persons you want to manage your financial affairs and medical decisions in the event you cannot. You can also use an estate plan to nominate a guardian to raise your children if they are under the age of 18 when you die. Of course, the plan also contains detailed instructions on the disposition of your assets at death. The more clear, comprehensive, and well-crafted the manual, the better the estate plan.
Typical Estate Planning Documents. While each State has its own laws governing the transfer of property at death, a typical estate plan includes the following documents: Will, Revocable Trust, Durable Power of Attorney for Property Management, Assignment of Personal Property to the Trust, Certification of Trust, and Advance Health Care Directive.
Common Estate Planning Goals. Perhaps the most common estate planning goal is to avoid the court system at death (i.e., probate) or during life in the event of incapacity (i.e., conservatorship). Only having a Will in most States guarantees your estate will require court administration because your executor must be approved by the Court before he or she can act on behalf of your estate, and the executor’s actions must be approved by the Court before your estate can be distributed to your family.
Living Trust vs. Will. The most common technique to avoid the court system is the establishment and funding of a living trust. A living trust is like a Will in that it directs who receives your assets at death. It also allows your assets to be managed privately for your benefit in the event you become disabled.
There are three positions in every living trust; namely, the creator of the trust (the Settlor), the manager of the trust (the trustee), and the beneficiary of the trust. When you form your living trust, you are all three of these positions. Once you sign your living trust document, the next step is to transfer your assets from your name individually to yourself as trustee of your living trust. For example, if you wish to transfer an investment account to your trust, you sign a new account form retitling the account to your name as trustee of your living trust. The investment account custodian will ask for proof that you, as the trustee, have the power to buy, sell, and manage the investment account. You provide that proof by providing them with a Certification of Trust, which is a notarized document in which you certify under penalty of perjury that you are the trustee of the trust and have the power to manage the trust assets by your sole signature. This Certification of Trust is your ticket to act!
It is important to understand that when you establish a living trust, you still should have a Will. To coordinate the two documents, you name your living trust as the beneficiary of your Will. This type of will is known as a “Pour-Over Will” because it catches assets held in your name at death and pours them over to your living trust. Thus, a Pour-over Will is a safety-net to make sure your assets pass in accordance with the terms of your living trust, whether you transfer them to your trust during life or not. Despite having this safety-net, it is wise to transfer your assets to your living trust during your lifetime. Assets governed by your Pour-over Will still may require court administration depending on the value of the assets and the laws of your state.
Avoiding Court. How exactly does a living trust avoid the court system? By transferring your assets to you as trustee of your living trust, you have set up a vehicle so that your named successor trustee can take over when you can no longer serve as trustee. Remember, this is not just in the case of death. It also applies in the event of incapacity or disability, which may result from a car accident or stroke, for example. This new trustee provides the investment account custodian with a death certificate (in the event of death), one or two doctor’s letters certifying incapacity (in event of incapacity), and a new Certification of Trust. It is now unnecessary to go to court for the appointment of an executor or conservator because your named trustee has the authority to deal privately with the investment custodian. In California particularly, the probate and conservatorship systems are cumbersome, expensive, and public. Consequently, California living trusts are ubiquitous.
Whether you live in California or any other state, you will want to make sure that your bitcoin can be easily transferred to your heirs or beneficiaries from a legal perspective, while avoiding any and all courts. An estate plan is critical to avoiding courts and will help eliminate the red tape often involved in getting your most valuable assets to your loved ones. While you’ll certainly need a plan to physically transfer bitcoin from a technical perspective (i.e. private keys & signatures), planning for the legal transfer of ownership is extremely important and generally less well understood by younger bitcoiners as they contemplate an inheritance plan.
Future articles will cover advanced strategies to address the common estate planning goals highlighted above but it’s also important to consider the concerns that commonly come up when planning for inheritance.
A Common Estate Planning Concern. If you do create an estate plan, do you inform your children about your net worth? The discussion of wealth between parents and children can be tricky. For some, there are serious concerns that letting your children know about your wealth and their potential inheritance, may kill their drive to succeed in life. We’ve seen it in client meetings, hearing beneficiaries express that they’re just waiting for their parents to die rather than taking risks now, making their own mark on society. It’s enough to cause parents to second guess whether disclosing their wealth to their children is the right thing to do.
Specific Bitcoin Estate Planning Concerns. What happens when you add to this concern the typical secrecy surrounding bitcoin ownership? It’s generally considered bad Operational Security (OPSEC) to let others know how much bitcoin you own or how it is secured. Should this apply to your children too? Who doesn’t dream about having in-depth conversations about your excitement for bitcoin with your kids, hoping to pass that passion on to them? While it can be desirable to teach your next generation about why and how to hold bitcoin, isn’t it also a concern that they might let that information slip to strangers at a party? Having your children know too much about your bitcoin holdings prior to inheritance can be risky.
Further, who hasn’t been worried about what happens between the time you’ve accumulated your bitcoin and an untimely death? Is it lost forever? Are we supposed to feel safe having a “treasure map” to help our heirs find our hardware wallets, especially without assistance? Will a lifetime’s worth of savings become another story about searching landfills for old hard drives? These are genuine concerns for long-term holders. You may have told a loved one that if anything happens, to reach out to a particularly trustworthy and technically savvy bitcoiner but an effective bitcoin estate plan has to address these concerns on a formal basis.
Even if you are just beginning to think about inheritance and estate planning in a bitcoin world, you’re ahead of the curve. The purpose of this article is to help establish a baseline and to start the conversation, whether as a family or with an advisor. Attorneys that specialize in estate planning and financial planners can be additive to that process and the first step is often to ask for help. At Unchained Capital, we want our clients to have access to resources that maximize the value of their bitcoin, and we plan to make continued investment in this area, collectively from an educational content perspective as well as products and services. Please reach out to us if you have any questions (firstname.lastname@example.org) and also don’t hesitate to reach out to Ken or Chris directly as well (resources linked below).
This article is a collaboration between Parker Lewis (Head of Business Development for Unchained Capital), Kenneth Devore, Esq. (an attorney specializing in estate planning in California), and Christopher Lamia, CFP® (a partner at Forum Financial Management, LP). For more information on Ken Devore, please see https://www.trustplanner.net/kenneth-e-devore-esq/ and for Christopher Lamia, please see https://www.forumfin.com/about-us#christopher-lamia.