How to plan to pass on Bitcoin to your loved ones?

Today, the admin wants to discuss something that may seem distant and not yet urgent: preparing to pass on Bitcoin to our loved ones in the event of our sudden demise.

No one wishes for such an event, but planning ahead will save those left behind from headaches and ensure they receive everything we intended to pass on.

Why Plan for Bitcoin Inheritance?

As Bitcoin holders, we all understand what Bitcoin is, its value, and how to access it.

However, for others who don't understand Bitcoin, they won't know its value or how to access it. Crucially, no organization or company can withdraw Bitcoin we hold ourselves on our behalf, unlike banks where heirs can present identification and claim an inheritance. This is why we need to plan how our loved ones can access our Bitcoin.

How Should We Prepare to Pass on Bitcoin?

1. Clearly Record Essential Recovery Information

Keep your Seed Phrase secure and resilient to environmental conditions, such as engraving it on a steel plate (Steel backup). Create multiple copies and store them in various locations to reduce risk.
Hardware Wallet Record your PIN separately for security.
Test your seed phrase before storing it by attempting to restore a new wallet with that seed phrase to confirm it's recorded correctly.
Consider using a passphrase for added security (25th word) to prevent access even if the seed phrase is compromised.
Store information in separate locations (Geographic Distribution) by keeping seed phrases and critical information in multiple provinces to mitigate disaster risks.

2. Choose Your Beneficiaries

Select individuals you trust to securely manage the assets and who can understand or are willing to learn the recovery process. It's advisable to choose at least 1-2 people for emergencies.

3. Draft a Clear Will

Clearly specify who will inherit your Bitcoin.
Choose from several methods for transmitting the Seed Phrase, such as hiding parts of it and privately informing the beneficiaries, who would then combine it with another part specified in the will to access the wallet.
Consult an attorney knowledgeable in digital assets to ensure the will is legally binding.

4. Implement Multisig (Advanced)

If we are confident that our beneficiaries understand how to access via Multisig, this method is also appealing.

What is Multisig?

It's a system that requires multiple private keys for a transaction.
For example, a 2-of-3 setup means 2 out of 3 keys are needed to access funds.
Prevents single-person withdrawals; requires joint confirmation.

Multisig-compatible Wallet Software

Electrum
BlueWallet
Specter Desktop
Nunchuk

How Should Beneficiaries Prepare When We Are No Longer Around?

1. Stay Calm and Gather Information

Stay calm and gather all available information, including Hardware Wallet, PIN, or Seed Phrase, to recover the wallet.
If there is a will, contact an attorney for further information (if applicable).
Do not rush. Take time to understand before taking any action.

2. Study and Understand

If you don't yet understand Bitcoin wallet recovery or transactions, study up before performing any transactions or consult a trusted expert.
The most important thing is to keep the Seed Phrase safe and never disclose it to anyone.

What We Should Advise Beneficiaries

Prohibitions

Never give the Seed Phrase to anyone. It's equivalent to transferring your Bitcoin to them.
Never store the Seed Phrase online. For example, don't save it on a computer, mobile phone, or take screenshots.
Beware of all forms of scammers who pretend to help recover or assist.
Don't be so afraid to touch it that the Bitcoin is left untouched.

Additional Recommendations

Start with small amounts. Test the system by sending a small amount of Bitcoin first.
Keep records of all transactions for tax purposes.
Update software to the latest version always.

Examples of Different Planning Approaches

Method 1: Seed Phrase Partitioning

Some may plan for beneficiaries to each hold a part of the Seed Phrase, and an attorney holds another part. All parts must be combined to access the Bitcoin.

Method 2: Separate Wallets

Divide the Bitcoin amount for each beneficiary, accessible only by that beneficiary. Give half the Seed Phrase to the beneficiary and entrust the other half to an attorney, to be opened upon our passing.

Method 3: Using Multisig

Use Multisig to access the Bitcoin wallet. While this might sound complicated, it's not as difficult as it seems and can be understood with study. It's considered the most interesting and secure method.

Example of a 2-of-3 Multisig Setup

Key 1 held by Beneficiary 1
Key 2 held by Beneficiary 2
Key 3 held by an attorney or trusted guardian

Summary

Planning today can help ensure our loved ones receive what we intend for them. And if you want an extra layer of security, using a Hardware Wallet is what the admin recommends (a quick plug!) as it makes managing and transferring Bitcoin safer and more convenient.

Good planning involves educating beneficiaries while also securing the seed phrase while we are still here.