How to prepare your estate when you die

Crypto Legacy: If the main attraction of Bitcoin (and cryptocurrency) is its relative privacy, you might not be particularly keen on sharing your private keys with your loved ones. An attacker can sift through your papers, arm your keys and drain your savings.

In fact, most privacy-focused Bitcoin investors are used to keeping their private keys completely secret. But when the Grim Reaper appears unannounced, the family of a crypto millionaire may be left without access to their relative’s riches.

Bitcoin estate planning

In one of the most publicized examples, paranoid American investor Matthew Mellon died in 2018, leaving few clues to a crypto fortune worth $500 million. There are ways to help people keep their asset information safe while still allowing it to be used for legacy purposes.

“One way to solve legacies with crypto wallets is through social recovery,” Lukas Schor, co-founder of Safe, told BeInCrypto. “[There are] solutions [that] can offer options to nominate a trusted family member or friend who can recover a wallet in the event the owner passes away.”

Safe (formerly known as Gnosis Safe) is a multi-signature wallet on Ethereum that specializes in crypto custody. Users can customize how they manage crypto assets, with the ability to add multiple devices to confirm transactions.

A few other entities such as Casa’s Covenant already offer similar services. With multi-signature wallets, private keys can be spread across different heirs to minimize the risk of accidental loss or intrusion. No individual can confirm a transaction.

Imagine that there is a key with six signatures, as in the case of Casa. Three signatures are required to sign a transaction. These keys can be shared or shared between different parties: spouse, financial advisor or lawyer, etc., all of whom must confirm a transaction in the event of your death.

Double burial

Cryptocurrency can be lost, especially if the owner does not share the private keys that allow access to the wallet by a third party using legacy administration.

Around the world, there are several examples of Bitcoin investors who died without leaving the keys to their relatives. In such cases, families have to deal with a kind of “double burial”.

They must mourn the loss of a loved one. And at the same time come to terms with the loss of an irreparable fortune that might have been theirs.

This underscores how Bitcoin’s main appeal—its safe removal from regulatory oversight and impenetrable privacy—could also become its fatal weakness.

Users can benefit from immunity from high bank fees and taxes. But they miss out on the good side of the old system, such as help with the management of their properties.

That may be starting to change. “In the long term, we even see institutions such as banks, insurances and notaries taking on this role of restoring access to crypto wallets,” Lukas Schor, the Safe co-founder, told BeInCrypto.

Schor went on to say:

“Social and institutional mining is possible through a new type of crypto wallet called ‘smart contract wallets’. There is an ecosystem-wide initiative underway called ‘account abstraction.’ [It] establishing these smart contract wallets like Safe or Argent as the standard way to hold and trade crypto-assets.”

3.7 million BTC lost forever

Trenton Kennedy is head of communications at blockchain analytics company Chainalysis. He pointed to this blog post from 2020 when asked by BeInCrypto to share data on the amount of Bitcoin that may have been lost forever for various reasons, including death.

According to the blog, 20% of all Bitcoin in circulation has been lost, may be forever. That equates to 3.7 million BTC, valued at $75.45 billion at current prices. There is no direct mention of death in the statistics. But it probably accounts for a good part of these losses.

Chainalysis said that around 18.6 million Bitcoins had been mined as of June 2020. A fifth of the total “has not moved from its current set of addresses for five years or longer. We consider this lost Bitcoin.”

Examples

The example of Matthew Mellon, in particular, may encourage investors to start thinking beyond their own lives. Mellon died in April 2018 at the age of 54. He walked away with up to $500 million in Ripple (XRP).

It was hidden in coolers under false names in banks across the United States. The secretive millionaire took the fortune with him. He failed to name heirs to the fortune and did not provide information on how to access his crypto wallets.

Death is complicated enough in crypto when a private investor dies with the private keys to their wealth. But the pain is amplified exponentially if the deceased is the CEO of a digital currency exchange responsible for the safekeeping of millions of dollars.

In December 2018, the death of Gerald Cotten, founder and CEO of crypto exchange QuadrigaCX, led to the loss of $145 million stored in the platform’s cold storage. Quadriga was the largest exchange in Canada by traded volume at the time.

Crypto inheritance: the law of inheritance

Posthumous loss of cryptocurrency is likely to become a bigger problem in the years to come. There is reason to believe that investors will remain inclined to value secrecy to protect their wallets.

While death is a concern, Bitcoin wealth can also be lost through theft, accidental deletion, security breaches, and loss of passwords and hard drives.

This partly explains why crypto investors are secretive about their details. But there is a positive side. The introduction of new regulations could mean that actors operating in this decentralized space would be able to demand greater protection should the need arise.

Regulators around the world have begun to formally recognize Bitcoin. This means that national inheritance laws may apply to crypto assets, as with other investments in estates.

Nevertheless, it is still up to the investors themselves to formally identify their heirs in their wills. That said, having a will does not mean that one’s Bitcoin fortune will automatically be passed on to loved ones.

Private keys are still required to unlock crypto wallets. This is why individuals must give clear instructions about how their heirs can access their wealth.

Simpler methods may include entrusting third parties with copies of private keys, either on paper or in digital format. But such options require a level of trust.

Crypto heritage: Investors worried about the fate of their Bitcoin

According to a 2020 study by the Cremation Institute, only about a quarter of Bitcoin investors have a documented plan for how their crypto assets will be distributed when they die.

It said around 89% of crypto investors worry about what will happen to their assets after they die, but few plan properly. Younger investors were particularly guilty, hardly thinking beyond their own lives.

Younger generations — those between the ages of 18 and 40 — are 10 times more likely to not have a plan compared to older generations, the study found.

“While complacency is a big factor, the combined problems of a lack of crypto-property services and government regulation are key reasons for overall planning disorganization,” the Cremation Institute said at the time.

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