By Jon Bobb
Source: https://www.unchained.com/blog/preserving-your-bitcoin-legacy-estate-and-inheritance-planning-basics
Estate planning is a crucial part of your Bitcoin journey and requires foresight and planning to ensure a smooth inheritance. It's common for family members to become so focused on one thing—the technical details of Bitcoin key management—that they overlook the legal process of actually distributing your Bitcoins. Without proper planning, your heirs and beneficiaries may not receive your Bitcoins in a timely manner and according to your wishes.
In this article, we’ll provide an overview of Bitcoin estate planning. We’ll cover important information to consider when designing an estate management strategy to pass on Bitcoin to your next generation.
What is estate planning?
The estate planning process determines how you want your assets managed and distributed after your death. It's not just for the wealthy and elderly—regardless of your age or financial situation, estate planning is a useful tool for ensuring your wishes are respected, your loved ones are protected, and your assets are managed efficiently.
Without proper planning, your estate could become subject to the probate laws of your area, ultimately creating unintended consequences that go against your wishes.
A comprehensive estate plan may include one or more of the following:
- will
- power of attorney
- Trust
We delve into each one.
will
A will is a legal document that describes how your property and other assets will pass after you die.
After your death, your will will usually be filed with the probate court in your area. The person holding the will can do this, as can the executor named in the will.
An executor or personal representative files a "Petition for Probate" to request the court to legally appoint an executor. This petition typically includes the deceased's information, the date of death, a list of known assets, and details about potential heirs. Once authorized, the executor can assist with the probate process, helping to resolve any outstanding taxes and transferring assets to heirs.
| advantage | limitation |
|---|---|
| Creating a will is quick and cheap | The transfer of assets in your will is subject to the probate court, and court proceedings can be time-consuming and expensive, depending on where you live. |
| Can be modified or revoked at any time | Limited privacy because wills are a public record |
| Provide clear guidance for asset distribution | More likely to be challenged by heirs (creditors) who are dissatisfied with the will |
If you don't have a will, your estate will be settled according to the laws of the jurisdiction where you die. This is called dying intestate, and it can lead to unsatisfactory outcomes for you and your heirs. You can prevent this by having a will and keeping it updated regularly.
power of attorney
If you become unable to make decisions due to illness, injury, or aging, someone must manage your affairs. A power of attorney (POA) designates a trusted person as conservator. In the event of your incapacity, a family member or close friend can present evidence at a hearing to obtain consent. Once granted, the conservator will have the legal authority to manage your finances and make important decisions on your behalf.
| advantage | limitation |
|---|---|
| Can be customized according to specific needs | It is valid only during your lifetime and ends upon your death. |
| Can grant broad or limited powers over specific decisions | Some organizations may hesitate to use older, outdated, or "too new" POAs. |
| Reduce the need for a court-appointed guardian if you become incapacitated | Can be revoked accidentally and without updating documentation |
| Manage everything related to property, finance, investments (POA) and healthcare (Health Proxy) |
Trust: “entrusting” assets to a trustee
A trust is a common legal arrangement used in estate planning, asset protection, and financial management. It involves three parties: the grantor, the trustee, and the beneficiary.
The grantor is the person who creates the trust and transfers assets into it. This person determines the purpose of the trust, establishes its terms, and designates the other two parties—the trustee and the beneficiaries. The grantor must also decide whether the trust is revocable or irrevocable (we'll discuss this later).
A trustee is a person (or entity) who manages the trust assets according to the terms of the trust and in the best interests of the beneficiaries. A trustee can be the grantor (if still alive), a trusted person (a friend or family member), a professional (such as a lawyer or accountant), or a company (such as a bank or trust company).
Beneficiaries are the people or entities that benefit from the trust's assets and income. They receive distributions according to the terms of the trust deed. The grantor can set specific terms and conditions under which beneficiaries receive the trust assets.
Revocable Living Trust
A revocable living trust, sometimes referred to as a "living trust" or "revocable trust," allows the grantor to maintain control over their assets during their lifetime. The grantor can modify the trust at any time, change the trustee and beneficiaries, direct investments, or even revoke the trust. If properly designed and funded during lifetime, a revocable trust generally allows for the rapid transfer of assets without the need to publicly disclose the details of the succession.
A revocable living trust can also be considered a way to maintain control over your assets during your lifetime while ensuring that they do not pass through the probate court after your death. It is not a substitute for an irrevocable trust (see below), as that serves an entirely different purpose. Using both a revocable and irrevocable trust is rare.
| advantage | limitation |
|---|---|
| Grantors have the flexibility to control how and when beneficiaries receive assets | Higher initial construction cost and complexity (compared to a will) |
| Avoid probate and allow beneficiaries to quickly access assets | If the assets are not properly transferred to the trust during the grantor's lifetime, they cannot be managed by the trust and may still require probate. |
| Protect the privacy of beneficiaries, and the details of inheritance do not need to be disclosed | Because the grantor retains control, the trust assets are considered to be part of the grantor's estate and are therefore vulnerable to claims by debtors. |
Irrevocable Trust
Unlike a revocable trust, an irrevocable trust cannot be modified. Once a grantor places assets into an irrevocable trust, possession and control of those assets are permanently transferred. This method is often used for asset protection and tax reduction purposes.
| advantage | limitation |
|---|---|
| Assets can be transferred in highly structured ways (college funds, spousal life tenures, generation-skipping trusts, special purpose trusts, etc.) | Once created, it cannot be modified or revoked. If not properly constructed, the beneficiary may abuse the dividend |
| Can reduce inheritance tax | The grantor relinquishes ownership and control of the property |
| Generally protects the grantor's trust assets from claims by creditors | Ongoing legal and administrative support is often required to meet stringent legal and tax requirements. This support can be expensive. |
| Avoid probate and allow beneficiaries to quickly access assets | |
| Protect the privacy of the beneficiaries, and the details of the inheritance do not need to be disclosed |
What type of estate plan is best for you?
To ensure your estate is passed on, your planning efforts may include many of the tools listed above. A qualified estate planning attorney can help you design a strategy that works best for you and ensure your loved ones have the necessary knowledge, skills, and resources to liquidate your estate and inherit your Bitcoin.
It would also be helpful if your estate planning attorney has knowledge of Bitcoin, but since Bitcoin is not legally unique, it's not strictly necessary. To learn more, see our blog post on five key considerations when building a Bitcoin estate plan.
Protect Your Bitcoin Legacy with Joint Custody
Joint Custody Multisig is a great way to secure and protect your Bitcoin in your estate and/or succession planning. Unchained offers a variety of account types and configurations, allowing you to:
- Keep your keys safe while you live . Safeguard your own private keys and include your heirs, trustees, successors, and beneficiaries in your plan. This information can remain private until you are ready.
- Ensure proper ownership of assets . Create a clear separation between personal and trust assets. Enforce strict debt segregation by designating grantors, trustees, successors, and beneficiaries.
- Get convenient management . Use different account types for personal, corporate, and trust assets. Track assets individually using an unlimited number of safes. Get detailed monthly reports.
- Make sure your family is involved . Add multiple users to your trust and company accounts, use keys as needed , and divide debt and access rights among your loved ones.
- Get access to Bitcoin experts on demand . Comprehensive resources and premium support ensure you and your loved ones have the knowledge and skills to manage your Bitcoin.
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