E214 Transferring Bitcoin Upon Death

Let’s review a real-world case study of a client’s plan to transfer his bitcoin upon his death. This looks like an elegant solution, so let us know if you see any major red flags! Cloned wallets and sharded seeds The client’s plan focused on clone wallets and sharded seeds. The plan starts with two clone hardware wallets. A hardware wallet is like a minicomputer that plugs into your USB drive, but it is not fully connected to the internet or the computer. It keeps your private keys/secret codes offline while allowing you to interact in online transactions. When you clone your hardware wallet, you make duplicates of it. Each clone wallet is password protected. The client gives one clone wallet to his executor. He gives the other clone wallet to his sister (who is an heir). Neither the executor nor the sister has the PIN to the wallet. They just have the device. They will receive the PIN upon the client’s death either by dead man’s switch or from another heir. Then the client shards his seed phrase. Remember the seed phrase is 12 or 24 secret words that you can use to recover your cryptocurrency if something happens to your hardware wallet. The client has divided his 12 words into two chunks of 6. The client gives half of those seed words to his executor. The executor won’t receive the second half of the words until the client dies. Upon death, the executor will receive the PIN code to his clone wallet and then he has access to the cryptocurrency. The back-up plan is that the sister receives her PIN code from another heir or dead man’s switch. Then she has access to the cryptocurrency. In the event of hardware failure, the executor will receive the second half of the seed words to recover the hardware wallet. Risk of theft vs catastrophic loss Plans need to balance risk of theft vs. risk of catastrophic loss. You are twice as likely to lose your cryptocurrency than to have a hacker steal it from you. It is more complicated than memorizing a PIN code. You don’t have the safeguard of calling a bank to reset your PIN. It is also easy to over-complicate things and make it too difficult for your heirs. There might be security holes in your plan, but are they big enough to merit increasing risk of catastrophic loss? Redundancy, and balancing risks Using multiple hardware wallets is tangible and understandable. A hardware wallet is a device, and it needs a code to access the cryptocurrency. If hardware wallets fail, then you can always shard the seed phrase. By using cloned wallets, there is a slight increase for the risk of theft. In this case, the client accepted the increased risk of theft to decrease the chance of his cryptocurrency disappearing upon his death. While this plan isn’t perfect, I like it. Please pick it apart - I want to hear your feedback. We might not be hard-core “bitcoin-ers,” but we do know what happens when people die! Being an executor is not easy. If you add cryptocurrency to the executor’s job, it’s definitely harder. It will be interesting to learn more as people die holding cryptocurrency. If you want to learn more about probate in general, please check out my book, “How Probate Works.” I don’t have a Bitcoin chapter yet, but you will get a sense of how the probate process applies to your Bitcoin situation. Request your free consultation