Bitcoin and inheritance: effectively transmitting your cryptos to your heirs

Bitcoin makes you owner of your money, but also responsible for his estate. Let’s see in this article what problem the transmission of cryptocurrency poses and how it can be solved.

The link between freedom and responsibility

We often hear that Bitcoin is the currency of freedom and that it guarantees the full ownership of its funds. However, it is also the currency of responsibility.

The responsibility is the fact of answering for one’s actions, of bearing the consequences. It is usually intrinsically linked to freedom. If a person is free to do something, it makes sense that they bear the consequences. Conversely, if a person is not free to do something, then he does not have to answer for his actions.

Nowadays in the West, we tend to forget this necessary link. We want the butter and the butter’s money. We want both to be free to choose our way of life and to have an egalitarian and free health system, while our health depends specifically on this way of life (and the excesses that are committed). We want job security to be ensured by legal constraints and public subsidies, but we also want to be able to resign at any time. We want the state to guarantee our purchasing power, but also to create money to save the economy.

Thereby, responsibility falls more and more into oblivion. With state interventions and multiple insurance policies, we pay less and less attention to the consequences of our actions. It plunges us into a perverse situation where we are both irresponsible individually, but responsible for everything collectively. And this disappearance of responsibility is used to justify more and more restrictions of freedom.

This is particularly true in the financial fieldwhere theremoval of individual responsibility is accompanied by a drastic regulations. The banking system (with which you are forced to interact if you want to receive certain payments, such as salaries) thus offers you many guarantees at the cost of a systematic control of your account. So if your bank is obliged to reimburse you in the event of fraudulent payments made with your bank card. It can also block a transfer or freeze your account.

With Bitcoin, it’s different. You are responsible for your money and his safety. If he gets robbed, you will have to accept the situation and try to find the thief. If you lose your access, no one will be able to help you. But you are free to use your funds as you see fit.

Bitcoin is thus a call for individual responsibility, and this particularly applies to inheritance.

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Cryptocurrency Legacy

L’legacy is a problem for Bitcoin and cryptocurrency, in the sense that it makes the transmission much more complex.

In the traditional world, the succession can be done bydirect apprehension of the thing. Even if this is subject to a series of more or less complicated rules depending on the country, the action in itself is not insurmountable for the heir. Similarly, digital assets managed by third parties generally involve interaction with that third party. For example, it will suffice to request the funds of the deceased from his bank so that it proceeds to the settlement during the succession.

With Bitcoin, the task becomes much more difficult. Bitcoin in effect allows the user to have full ownership of the funds through the exclusive knowledge of its private keys. This implies that he must keep this information secret, even from his relatives, in order to guarantee sovereign possession of his bitcoins. The main problem therefore lies in the means of transmitting this key ” after death “without revealing it ” before “.

Furthermore, even in the event that the heirs have access to the said private keys (particularly in the form of mnemonic phrases of 12 or 24 words), they have to do the manipulation necessary to proceed with the transfer of funds, which increases the risk of loss or theft. For many people today, recovering cryptocurrency funds is an obstacle course.

However, a lot of bitcoiners and crypto-enthusiasts never thought about this problemoften dismissing it thinking they’ll deal with it later or part with their bitcoins before they die, or even live forever.

Certainly, the loss of bitcoins does not constitute a flaw in the system. As Satoshi Nakamoto wrote, “lost coins only slightly increase the value of other people’s coins” and this loss can be considered as “a gift to all” by natural currency deflation.

However, this loss poses a ethical problem. You inherited from your ancestors. Why should this transmission be interrupted because you did not take the time to organize it? Wouldn’t you want your loved ones to receive your cryptocurrency wealth if something happened to you?

So, remember that you are going to die, and prepare your inheritance in hand now!

A succession plan for your cryptocurrencies

The most reputable model for ensuring the succession of your cryptocurrencies after your death is the one defined by pamela morgan in 2018, in his book “Cryptoasset Inheritance Planning”. Pamela Morgan has taken the time to think carefully about the ins and outs of inheritance in order to satisfy the clients of her law firm specializing in crypto-assets. In her book, she suggests that you set up a succession plan which we will detail here.

This consists of writing a letter to your loved ones that they will read after your death. This letter must contain the description of the steps necessary to achieve recovery of your cryptocurrency. Typically it will look like: “Hello…I love you…I have cryptocurrencies…Be careful…Here are the instructions…”. Be brief! It is not a will describing your last wishes. The letter will be placed in a closed envelope.

The plan must be adapted to your requirements, your technical level and the amount of bitcoins and cryptocurrencies you own. The simplicity should be the key word. It’s not about setting up a complex puzzle to solve to access your treasure. The plan must be sufficiently precise so that your heirs can recover your bitcoins without much thought, but also vague enough to guarantee a certain security against a malicious actor.

First, select in advance the storage place of the letter. This must be theoretically inaccessible to others as long as you are alive, but who will be probably searched after your death. For example, the document can be placed in a personal safe, in a bank safe or with a notary. If you haven’t already done so, also choose where to keep your backups, i.e. your recovery phrases and your private keys written on sheets of paper or other media.

Then select some auxiliaries. They will be the people in charge of helping your heirs by giving them technical and/or legal advice. Two or three auxiliaries are enough. They must be carefully chosen so as to avoid any abuse in the process. Make a list of these people, specifying the degree of trust you place in them, their technical level and the means of contact. You can add an element of identification, such as a photograph, to help your heirs not be deceived.

For example, here I have chosen two people to act as intermediaries in my plan: a close friend, who knows Bitcoin and has handled a wallet before, but who does not necessarily understand the details behind the derivation of keys and addresses ; and a cyberspace acquaintance whom I trust a little less, but who has a great technical knowledge of Bitcoin.

Subsequently, make theinventory of your assets and where backups are stored. This inventory will be used by your heirs to find all of your funds. For each wallet, you must indicate the device used, the corresponding software, the cryptocurrencies stored and the location of the recovery phrases and any passwords. Attention ! Sensitive data for access to cryptocurrencies (recovery phrases, etc.) should not appear on the letter.

Here I have listed 4 (fictitious) wallets that mainly hold BTC, but not only. The first is a Trezor hardware wallet that I use in conjunction with a Trezor Suite software application. The second is a software wallet that I use on my laptop. The last two are mobile wallets.

Finally, you can also literally add some resources to help understanding, such as a link to the video (in French) of Discover Bitcoin on the subject.

Once the plan achieved, you may be able to improve it over time.

First of all, you can make it legal, by referring you to specialized lawyers, in order to avoid any legal complications for your heirs. Maybe you have a certain outlook and think there’s no need for the state to intervene here, but that’s not necessarily the case with your relatives, who will want to want to sell your assets. against traditional money by doing everything in the rules.

Secondly, you can update the different components of your plan, choosing better backup methods (multisignature, for example), better storage locations and better auxiliaries. Constantly evaluate your plan against the criteria of Security, Usability, Resilience and Effectiveness (SURE).

The purpose of this plan is for you to leave something to your heirs in the event of an accident. So do it now!

The reflection in this article stems from Pamela Morgan’s book, “Cryptoasset Inheritance Planning: a simple guide for owners”, which I highly recommend reading.

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