How to Bequeath Your Digital Assets to Your Descendants
Depending on your belief system, death is either the endgame or the next level. Whatever lies on the other side, your bitcoins are no good there. Just as we entered this world with nothing, we are destined to leave it with nothing. All those years spent stacking sats needn’t be in vain, however. New and improved tools have made it easier to bequeath your crypto to your next of kin.
Digital Inheritance Demands Modern Solutions
According to John Milton, “Death is the golden key that opens the palace of eternity.” That may be, but that key won’t unlock your crypto wallet when you’re gone. It’s a task that calls for a private key – a 256-bit number that enables your coins to be spent. You could just hand a copy of this key to your next of kin, or leave it in a safe deposit box with strict instructions for the executor of your estate, but to do so would be to place your trust in the goodwill and competence of others. Safe deposit boxes aren’t safe at all, while family can’t necessarily be relied on to resist touching your tokens until the appointed time.
The solution, for a growing number of cryptocurrency users, has been to utilize purpose-built digital inheritance software that promises to automate the process on your behalf. TrustVerse is a protocol for handling digital assets, including the management and ownership of digital identities. Pluto is its legacy planning service for cryptocurrency owners. After selecting an inheritance design that dictates the conditions under which the assets can be bequeathed, a smart contract is set up to administer the process. Should the owner pass away suddenly, the inheritor can submit a certificate of death to gain access to the assets locked into Pluto’s smart contract. There are also provisions to cover multiple beneficiaries, who must reach consensus before funds can be unlocked.
Other Ways to Bequeath Your Crypto
The crypto space is surprisingly light on other turnkey digital inheritance solutions. Safe Haven appears close to finally shipping its product. It allows you to add a verified legal entity to your inheritance plan, but there is also the option to enable a fully automated solution that uses smart contracts to trigger a so-called dead man’s switch after a certain period of time.
Similar technology is utilized in Last Will, a BCH inheritance solution that news.Bitcoin.com covered in April. It too contains a dead man’s switch with a six-month trigger that will make the coins available to the inheritor unless the owner refreshes the Last Will agreement. It’s not a foolproof solution by any means, but it’s an effective way of preparing for the unexpected. If you’re planning a solo trek to the North Pole, locking your coins into Last Will might make sense. It also benefits from being a fully non-custodial solution, whose code can be inspected on Github. The value of a decentralized inheritance solution is significant: one project that sought to tackle this challenge, Digipulse, died before anyone could use it.
Italian startup Crypto360 has devised a secure off-chain back-up service for wallet seeds and private keys that’s specifically designed for digital inheritance. Its website doesn’t exactly inspire confidence, however, and bitcoiners may conclude that they would be better off stashing a hardware wallet in a safe place and leaving instructions to its whereabouts in a sealed will.
Crypto and Inheritance Tax
Where there’s death, there’s taxes, and crypto assets are no exception. In both the U.K. and the U.S., cryptocurrency is treated as property, which means inheritance tax is technically due on any digital currencies your descendants receive.
Koinly founder Robin Singh told news.Bitcoin.com: “Crypto is basically property, so the inheritance tax applies but the tax-free limit for it is so high that very few people are ever going to be hit by it. It’s been dubbed the ‘Paris Hilton tax’ for a reason.” The tax software specialist is referring to America’s inheritance tax which is only due on estates worth more than $ 5.4 million. As a result, only 0.2% of U.S. estates are estimated to be liable for the tax. Unless you’ve been building up bitcoin since 2011, you’re probably excused.
Take Care of Your Crypto and Your Crypto Will Care for You and Yours
Bitcoin is self-sovereign money. It demands that its owner takes action to preserve it, without the safety net of state-built protections in the event of loss through theft or carelessness. As a result, most cryptocurrency owners are already proactive when it comes to safeguarding their assets. Caring for the things you hold dear extends this obligation to finding a way to pass them on to your nearest and dearest when the time comes.
Planning for the worst while hoping for the best means ensuring there’s a way for your heirs to inherit your digital assets without being forced to guess passwords, piece together recovery phrases, or track down 2FA codes. Making your crypto secure enough to survive this life, while making it easily transferable once you pass on to the next life is harder than it sounds. Get it right, though, and you can relax in the knowledge that your coin-accumulating efforts won’t be in vain – whatever the future may hold.
As Hal Finney wrote, a little over a year before his death in 2014:
Discussions about inheriting your bitcoins are of more than academic interest. My bitcoins are stored in our safe deposit box, and my son and daughter are tech savvy. I think they’re safe enough. I’m comfortable with my legacy.
What do you think is the most effective method for handling digital inheritance? Let us know in the comments section below.
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