Inheritance Planning for Cryptocurrencies: 3 Steps in 3 Minutes

I’ll be expanding these ideas in a forthcoming article and book but with prices skyrocketing, and so many new people owning tokens for the first time, I want to provide a quick reference guide that you can complete in less than 10 minutes to help protect your new assets.

Edit: Cryptoasset Inheritance Planning: a simple guide for owners is now available at Amazon.com (and at amazon sites throughout the world).

How to use this guide: The fastest, most secure way to use guide this is to print two copies of it as-is, don’t fill in the blanks on your computer. Next, get two sheets of paper and use a pen to write down the important information your heirs will need on both sheets of paper. Attach one sheet to each copy of this guide and store it securely. Alternatively, you could print on one side of the page and write your instructions on the other side of the paper.

There are three things that your heirs MUST know about in order to access these tokens and keep them safe: exchanges, wallets, and devices. We’ll explore each in order.

Exchanges

Most exchanges are centralized and hold funds for you in an account to allow you to trade between local currency and cryptocurrency. Many people purchase their first bitcoin or ether, using their local currency, through exchanges like Coinbase, Xapo, Bitfinex, Kraken, or Poloniex. Often, but not always, people link their traditional bank accounts to these services.

What do your heirs need to know? If your loved ones don’t know the exchange account exists they cannot access it, so at minimum, they need to know what exchanges you’re currently using and the ones that you no longer use but are still open. You do not need to list the password or login credentials; in fact, in a simple inventory you shouldn’t include them. Do not count on your family figuring out what exchanges you use based upon your bank statements. Do not count on the exchange to contact your family; they will not know you’ve passed.

An example of what you’ll write on your sheet of paper:

“I have accounts at __________, _____________, and _________________ exchanges to trade cryptocurrencies. There may be a balance in USD / EUR and/or a balance in any or all cryptocurrencies listed on the exchanges.”

Note: If you’re using a decentralized exchange like Bisq, first, kudos to you, and second, you’ll need to follow the procedures for wallets listed below.

Wallets

Wallets can be a bit trickier because often it’s difficult for people to know if they are using a “hosted wallet,” like an exchange where you don’t actually own your keys, or a non-hosted wallet, where you do. Many exchanges have their own wallets, most of these are “hosted wallets.” If you’re using a hardware wallet, you own your own keys. If you’re using a software wallet that constantly reminds you to “backup your wallet,” you probably own your own keys. If you’re not sure, try opening your wallet’s settings and look for a “wallet backup” or similarly named feature.

If you haven’t backed up your wallet yet, do it now. Seriously. Stop reading this article, take out a another sheet of paper, hand-write the name of the software and the wallet backup information. Be sure there are no cameras or prying eyes around. Put the backup in an opaque envelope and store it in a safe, secure place. Then come back to this article.

What do your heirs need to know? If you’re using a hosted wallet, follow the instructions for exchanges above and mention that you also use the associated wallet. If you’re holding your own keys (which you should be for the majority of your holdings), then your heirs will need to know at least two things: (1) the name of the wallets you use, and (2) where your wallet backups are located. The name of the wallet software is particularly important if you are using a single wallet to access more than one type of token.

If you use advanced features, like an encryption password for paper wallets (BIP38) or passphrase for seeds (BIP39), they will also need to know where those are stored (which should be separately from the seeds themselves). You do not have to list all of the tokens you hold, particularly if you’re actively trading. Whoever is helping your heirs access the tokens should understand wallet software and be able to search for all tokens available using the software.

An example of what you’ll write on your sheet of paper:

“I use Trezor, Ledger, Samourai, Jaxx, and Green Address wallets to access my cryptocurrencies. I use my Ledger and Jaxx wallets to access multiple currencies. The rest are bitcoin only.

You can find the wallet backups among my other important documents stored in a vault at XYX bank branch. Or contact my cousin Ray and my sister Lisel to locate my wallet backups. Or I’ve left instructions on how to find my wallet backups at ____________________.

Warning, anyone who has access to these backups can steal the funds and you or your heirs won’t be able to get them back. Watch ‘helpers’ carefully.”

Devices

What do your heirs need to know? They will need to know what devicesyou use to access your wallet accounts. Why? Because these devices probably have copies of your keys stored on them and it’s important that your heirs know not to throw away, donate, gift, or destroy these devices until the funds have been successfully moved to the estate or moved to your heirs. You don’t need to give them your access codes and passwords, unless you’re relying on them to use these devices to access your cryptocurrency which is a bad idea for many reasons — too many to discuss here. If you use a hardware wallet, print a picture of the device (a stock photo is fine) to attach to this document so that your heirs will be able to identify it.

An example of what you’ll write on your sheet of paper:

“It’s very important that you keep my phone, laptop, and any devices that look like the photo included on the following page until the estate is fully settled. Don’t let anyone access these devices without watching them carefully.”

Bonus

Your heirs will probably need someone to help them access your cryptocurrencies and asset tokens. If you can easily think of people you trust to help, then list them. I prefer having at least two ‘helpers’ designated, from different organizations or different sides of the family. The idea is that you want people who probably won’t collude to steal the assets. My clients often list Third Key Solutions LLC, thirdkey.solutions, as one of the helpers, but of course that’s not required. Remember this is just a bonus; if you’re not ready to commit to helpers now, just omit that section. Don’t let that stop you from writing out your inventory now.

An example of what you’ll write on your sheet of paper:

“My best friend Jessie Leverski can work with Third Key Solutions, at thirdkey.solutions, to help you access these funds.”

While doing these few things won’t guarantee your cryptocurrencies and tokens will go to the people you want them to (that requires a will, testament, or legal trust), not doing them will almost certainly guarantee your heirs won’t be able to benefit from your cryptocurrency holdings. This is the first step in what, for most people, should become a more comprehensive plan, especially if you’re holding a large amount of cryptocurrency. But that sort of planning takes time. Using this guide, you can start protecting your loved ones in just a few minutes. Select “print”, write down a few things on paper, store the guide securely, and sleep better tonight knowing you’ve started planning for their future.

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This article was originally published on December 15, 2017 on Medium

https://medium.com/@pamelawjd/inheritance-planning-for-cryptocurrencies-3-steps-in-3-minutes-83ebb3e916a2