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Top 15 Ways to Transfer Bitcoin When You Die

Bitcoin is more scarce than gold and the 10th most valuable asset in the world with a $1+ Trillion market cap.

According to Security.org, 40% of Americans own Crypto and 63% of current owners plan on increasing their position in 2024. 

As an investor, it’s a lot more fun to think about financial freedom rather than what happens to Bitcoin when you die.

Cautionary tales about losing Bitcoin usually focus on being locked out of ‘whale wallets’ worth millions of dollars.

Regardless of the dollar amount, losing any amount of Bitcoin hurts.   

The first step in making sure this doesn’t happen to you is to set up a Bitcoin Estate Plan.  

A reliable strategy to safely transfer Bitcoin to your heirs can preserve your legacy and it’s a lot easier to prepare than you may think.  

Pros & Cons: Most Common Ways to Transfer Bitcoin When You Die

At a high level, your estate plan includes an inventory of assets, legal documents like a will or trust, and an instruction letter.

If you read our Pros and Cons of Bitcoin ETF vs. Bitcoin and decided to invest in the ETF, then you don’t actually own Bitcoin and transferring accounts to your heirs is easy. 

Actually owning Bitcoin means you have access to the keys which are safeguarded by a backup recovery seed that must be conveyed to your heirs when you die. 

Not your keys, not your cheese.

Here are some common ways to physically transfer your Bitcoin keys when you die:

  1. Letter of Instruction:  Detailed instructions of how to access your Bitcoin wallets should consider your heir’s crypto experience and their ability to execute on the plan in the wake of grieving your loss.  
  1. On-Exchange: Leaving Bitcoin on an exchange is a convenient way to transfer crypto.  Your heirs will need to provide documentation and follow the instructions to gain access to a deceased family member’s account.  

Pro Tip: You can create a Coinbase account in the name of your trust.  Adding 3rd party 2 Factor Authentication (2FA), like YUBIKEY, is an option to further secure your account.  

  1. Fidelity (custodian):  If you use the Fidelity Investments app, you can create a cash management account linked to a crypto account. Call customer service or use the app to view/update beneficiaries who will be authorized to access your account with the proper documentation upon your death.
  1. Safety Deposit Box: Storing Bitcoin in a dual-access safety deposit box at a bank is ironic, but it works.  According to the NY Times, safe deposit boxes aren’t as safe as they seem and provide no federal protection. 

Non-technical solutions, like an old school safety deposit box can reduce human error and other failure points. Here are a few examples for securing Bitcoin stored in a safe deposit box:

If your death is expected, you can discuss this procedure with your heirs.  If your death is unexpected or you become incapacitated, when your legal Trust executes, the location of the box, the key, and the recovery seed with optional passphrase will be released.  

Pro Tip: An optional passphrase can protect you against the government seizing your safe deposit box since the passphrase is required to access your Bitcoin.  If you’re using a passphrase to secure your wallets, never store the passphrase and recovery seed together in the same location.  A letter sealed in a tamper proof envelope that is held by your lawyer is a simple solution if your recovery seeds are held separately. 

  1. Shamir Secret Sharing (SSS): SSS is an alternative to multi-sig if you’re concerned about relying on a 3rd party tech provider’s signature for multi-sig to work. Secret sharing uses unique cryptographic ‘key sharding’ to divide the recovery seed into parts or ‘shares’ of the whole. The key can be reconstructed from some, but not necessarily all, of the shares.

Option 1: Use a wallet that has Shamir Secret Sharing built in, like Trezor, to cryptographically manage the recovery process.  You’ll need to define the number of ‘shares’ to meet the threshold.  For example, 3 of 5 means that 3 of the 5 shares need to collaborate to recreate the wallet.  

Test this process out before blindly relying on this method to work correctly.  

Option 2: You can simulate a manual, although less secure version of Option 1 by splitting up your recovery seed words amongst different trusted people.  Provide detailed instructions to the executor for compiling the partial seed phrases including the contact information for the parties required to come together to restore your wallets. 

  1. Single-sig: A single signature wallet is what you’re probably most familiar with when buying a Ledger, Trezor or ColdCard.  One private key is used to sign transactions.  Multiple Bitcoin ‘child’ wallets can be created using a single backup recovery seed.  

Non-custodial single-sig wallets have a 12-24 word backup seed that can be used to recover the wallet.  

Some hardware devices use a PIN code to access the wallet.  The PIN may only be valid for the original wallet device or manufacturer even though the 12-24 word recovery seed is wallet provider agnostic.

Your estate plan docs should carefully disclose to your heirs the operating instructions and location(s) of your recovery seed with optional passphrase or PIN.

  1. Single-sig + Passphrase: Non-custodial Hierarchical Deterministic single-sig wallets have a 12 or 24 word backup seed + and optional 13th or 25th case sensitive  alpha-numeric phrase to recover the wallet.  

The passphrase creates an additional layer of security.  If your recovery seed is leaked or discovered, the passphrase ensures your wallet can’t be accessed.  

Define how you will provide the estate executor with a backup seed, passphrase (if applicable) and instructions for usage. Your seed phrase backup method can be customized and stored outside of your trust but you could leave the passphrase in a sealed letter to be retained by your lawyer to deliver to the executor.

Pro Tip: Storing your recovery seed and passphrase in different locations is more secure than storing them together.  To avoid a single point of failure, consider splitting your 12/24 word seed and your passphrase between your heir(s) and a non-heir professional executor who is familiar with Bitcoin.

Note: If you think about your 12-24 word seed like a multi-level bank vault, then the passphrase is the key to a specific floor.  If you have kids, you could leave each child a separate passphrase to unlock their portion.

  1. Multi-sig + Passphrase (Non-Custodial) 1 of 2.  A multi-sig wallet requires multiple signatures to process a transaction.  Multisig 1/2 (SeedA+PassphraseA || SeedB+PassphraseB).

Note: the ‘non-custodial’ reference means that none of the signatures is managed by a 3rd party application or service provider. 

Seed A – Safeguard your 12-24 word recovery seed.

Seed B – Choose a location, or individual like your executor to custody the second seed required for signing transaction.  

Pro Tip: If you make ‘Seed B’ a BIP85 derivation of ‘Seed A’, you will be able to rebuild Seed B even if your heir loses their seed.  This is an advanced tactic and must be tested before you implement it.  

  1. Multi-sig (Non-Custodial) 2 of 3 or more: 2 of 2, 2 of 3, 3 of 5 and 4 of 5 are common configurations for multi-signature Bitcoin wallets.  

Not my personal favorite solution because it is complicated, not simple.  If you use any multi-sig on a cold storage device, ALL of the recovery seeds and seed phrases are required to recreate the wallet if the device is defective or you want to change providers due to the master xpub requirement.  If you’re married to multi-sig, then sharing the master xpub with your lawyer or included in the estate plan docs could act as a safety net but you’re giving up privacy.

  1. Timelocks: I’m a big fan of timelocks, which are a type of Bitcoin Smart Contact that executes a transaction only after a certain amount of time passes assuming you are dead or incapacitated.  

Your heir would set up their own wallet and generate a receiving address.  You create a time-locked transaction to sweep your account balance to the heirs address.  

  1. Multi-sig (Custodial): A Custodial Multi-sig wallet requires multiple signatures to process a transaction.  One of the signatures is provided by the 3rd party hardware or software developer depending on what solution you choose.     

A beneficiary may be designated within the 3rd party’s app interface, if available, which functions like a deadman switch.

  1. Duplicate Hardware Wallets: I don’t love this solution as a standalone due to the increase risks of device failure and/or user error by your trusted executor or heir. Actively maintaining the device firmware/software updates, securely backing up the PIN, and using multiple secure locations for storage is critical for this simple solution to work.
    • Pros:
      • Eliminate the need to backup 12/24 words on paper, steel, or digitally by relying on a device specific PIN Code recovery.  
    • Cons:
      • Improper firmware updates, susceptibility to phishing and counterfeit wallet software or firmware installation could inadvertently drain your funds.  
      • Loss of the recovery PIN = unrecoverable accounts.
      • Subject to hardware failure, software bugs and bitrot. Bitrot happens when ‘bits’ on the SSD/HDD randomly flip (change) causing data corruption. 
  1. Deadman Switch: A dead man’s switch triggers an event to occur, like sending an email or signing a transaction, when the switch is no longer being ‘held’. 

For example, there are email-based services that send you a link to click every X days.  If you don’t click the ‘reset link’ to confirm you’re still alive, the switch will trigger and complete an action like sending an email message containing instructions to access your wallet. 

Google provides an Inactive Account Manager service, which you can use to authorize trusted contacts to access Google Drive.  A saved document on your drive could contain instructions, partial/whole recovery seeds and/or passphrases.   Google also has a ‘send later’ option that you can regularly edit to disarm.  Determine how much you trust Google since you won’t be around to verify if everything works according to plan.  

Pro Tip: Using a “deadman switch” requires your trusting the service provider isn’t malicious and won’t get hacked.  To reduce the third party risk, you should consider using cryptography to encrypt your message.  Proton mail provides an encrypted messaging system by default. 

For example, you can set up a Protonmail account and use PGP to encrypt the email message like this: 

Your deadman switch could contain information like the location of your recovery seed, the code to your safe, instructions for locating your web and mobile wallets.

  1. Custom Solutions: The crypto community has no shortage of bespoke solutions for leaving Bitcoin to your loved ones.  Most of the DIY solutions you’ll read on forums are complicated, subject to technical vulnerability and create a human point of failure.  

Examples of custom Bitcoin inheritance strategies…

Pro Tip: don’t do this on a machine that is connected or has been connected to the internet.  Never type your seed on your machine to avoid a malicious keystroke logger that’s hiding on your machine. 

  1. Digitally Sending your Seed:  At the bottom of the barrel when it comes to transferring Bitcoin after you die and most likely to be hacked would be a method that involves sharing your seed electronically via audio, video, image, SMS or as an email attachment.  Just don’t!!

As you can tell from above, there aren’t any widely accepted, user-friendly solutions supported in the market that don’t involve one or more critical security risks including: 

Pro Tip: Regardless what method you use to transfer your crypto, conducting a dry run with your trusted parties may help you identify steps that need clarified or updated over time. 

Choose your options carefully and consult with a qualified professional experienced in Bitcoin inheritance planning.  

Note: Stratus does NOT provide investment, legal or tax advice.  All information in this article is for educational purposes and should not be interpreted as investment, legal or tax advice.  The opinions expressed are those of the author for informational purposes and neither Stratus nor the author are liable for any errors, inaccuracies or omissions.  Digital assets, such as cryptocurrencies or decentralized finance, present unique risks for investors.  For investment, legal, tax, or other financial guidance you should consult your own advisor.  

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