Have you thought about what will happen to your bitcoin when you die? For many of us, the thought has at least crossed our minds. But the number of HODLers we know of who actually have a legally sound plan of action in place to ensure both sovereignty and privacy of their assets is very low. This is understandable. For starters, most of us don’t expect to die anytime soon. Even those of us who have planned ahead with a well-designed will arrangement probably haven’t yet considered the nuance of proper estate planning for digital assets. And we don’t know of any digital asset whose safekeeping and transfer requires more nuance than bitcoin.
Most people think of trusts in terms of an irrevocable trust. These trusts can be a great tool for providing tax benefits to both your estate and your beneficiaries if designed well. In such circumstances, legal and equitable title must be shared between the trustee and the beneficiary, which means that the settlor necessarily cedes legal control or, perhaps more commonly, part of his equitable claim to the trust property. . While this may be perfectly acceptable to some, others may balk at the mere thought of placing limits on the use and enjoyment of their bitcoin while alive. Here we will look at the revocable living trust as an estate planning tool for your bitcoin.
Will your Bitcoin be safe if you die tomorrow?
For those of us who have bothered to put together a properly executed will, there is a tendency to treat our bitcoins the same way we treat dollars in an account. This may work very well if our assets are held on an exchange like Coinbase or Gemini, but what if they are not? If you died tomorrow, would your loved ones know how to access your funds? Would they know what to do with the seed phrases you buried next to the tree in the garden, or how to interpret BIP39 punched in steel?
In an increasing number of cases, good estate planning requires a level of technical skill and understanding that the majority of estate planners do not possess. With the trend of technological decentralization continuing, a growing portion of a deceased’s assets will no longer be accessible with a simple email or letter to the deceased’s bank, stock exchange, or stock exchange. .
Self-custodied bitcoin requires more than an account password to own it. (The source)
Digital Asset Protection Trusts and How They Work
Digital asset protection trusts are a relatively new part of an estate plan. Lawyers in the estate planning community are beginning to realize that an increasing share of an individual’s net worth is in this rapidly changing asset class. The legal community has been forced to consider cryptocurrencies, NFTs, digital photo accounts, email accounts, social media profiles, and more. As lawyers react to the idea that someone’s Twitter profile, or Bored Ape NFT, deserves new regulation, we’re looking at those regulations in the context of the top digital asset we believe is worth preserving: the bitcoin.
Revised Uniform Trust Access to Digital Assets Act (RUFADAA)
Most states have adopted the RUFADAA or are considering doing so. In many cases, RUFADAA will empower the executor of your estate to request access to most of your digital assets in a manner that takes into account your privacy interests and the terms of large company service agreements. technologies. But when it comes to decentralized and permissionless monetary energy, for example bitcoin, RUFADAA will be of little use on its own.
This is why we at BTC Trusts recommend that you place your bitcoin in a living trust. A living trust will allow you to retain access to your assets in the same way as they do today, but also rest assured that if the unexpected happens, those assets will not be lost, forgotten or misused.
Achieve maximum flexibility with a revocable trust
With a revocable trust, you can choose to act as trustee of your digital assets pending a future event, such as death or disability. As settlor and trustee, you are free to change or modify the trust as often as you wish. Unlike an irrevocable trust, the property is not protected from creditors and even though it technically belongs to the trust, it will not receive any special tax treatment during your lifetime. However, provided these assets can be managed separately from non-trust assets, a revocable living trust can be created to pass your bitcoin to your heirs without limiting your use or enjoyment of these assets during your lifetime.
Document a secession plan without compromising confidentiality
“Privacy is necessary for an open society in the electronic age. Privacy is no secret. A private matter is something you don’t want the whole world to know, but a secret matter is something you don’t want anyone to know. Privacy is the power to selectively reveal oneself to the world. — “The Cypherpunk Manifesto” Eric Hughes
Is confidentiality important to you? You may or may not know that whether or not you have a will, your estate assets will go through a legal process known as probate. Probate is a legal process that becomes a public record. If you don’t want the public to know how many bitcoins your next of kin just took possession of, probate is something you want to avoid. Setting up a revocable trust or testamentary trust for your bitcoin will allow you to keep your holdings confidential, which your heirs will likely appreciate.
Disposition by probate could expose the contents of your estate to the world. (The source)
How you store and manage your bitcoins during your lifetime is up to you. At BTC Trusts, we find that most of our clients holding large holdings will choose to secure their digital trust property through non-custodial cold storage solutions. While this provides the highest level of security and privacy, it also introduces a level of technical complexity into transport. Accounting for this is an often overlooked aspect in traditional estate planning firms. That’s why it’s important to choose an estate planning firm that can make sure the transfer is well documented not only legally, but also in a technically sound way. A knowledgeable digital real estate planner will work with clients to develop the best possible transfer plan that will maximize security without introducing uncertainty or confusion. Remember that you will not be there to answer questions if something is unclear. Your real estate planner should consider the use of smart contracts, multi-signature cold storage, and encryption when developing the optimal way to complete the transfer.
Contact us for a free consultation
Now is the time to plan for the unexpected. If you hold significant bitcoin value, a proper estate plan will be needed at some point. The sooner this is put in place, the more protection and value it will offer. Take the first step and contact us today. We will be able to share our ideas to come up with a plan that works for you and your family.
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This is a guest post by Scott Worden. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.