“Estate planning, which is the process of planning who gets one’s assets after they die, can be a rather confusing, cumbersome process. Those annoyances are amplified, when it comes to dealing with bitcoin and other digital assets.”
A recent article in Coin Journal, “The 7 Steps of Estate Planning for Bitcoin and Other Digital Assets,” presents seven steps for handling the estate planning process for digital assets.
1: Conduct an Inventory of What’s Already Owned. Make sure that you have a good idea of what you really have. People often forget about bitcoin in an old wallet, only to find it later. It is also important to list all of the digital assets currently owned and to write down how each specific asset can be accessed in the future.
2: Separate Your Assets into Tiers. Divide up your digital assets into three tiers: (i) easily spendable; (ii) mid-range storage; and (iii) long-term cold storage. Don’t lock up all of your bitcoin because you might want to spend it.
3: Create a Plan for Each Tier. After you set up the tiers, create a plan for each of them. Think about balancing security, ease-of-use and accessibility. In addition to seeing what’s already working, a digital assets owner should also consider options that have stronger security protections. Some of these are hardware wallets, multi-factor authentication and multi-signature addresses.
4: Determine Who Gets What. Here’s the actual estate planning–deciding who gets what. Remember that you need both a tech plan and a legal plan for digital assets. Give a percentage of each tier to specific people, so they can avoid the unpredictable price fluctuations that would result from leaving specific amounts of specific digital assets for each person. Be certain that your heirs can access the digital tokens. Therefore, you must give them access to critical information. Such information includes passwords or the location of a hardware wallet. In addition, speak with an estate planning attorney about state laws on leaving digital money to heirs.
5: Test the Plan. It’s critical to test the estate plan from the viewpoint of the owner of the assets and the heirs. Start with a very small value for the tests to limit losses, if something goes wrong. You should test every possible scenario of the plan’s outcome, not just the most likely outcomes.
6: Execute Your Plans. Move ahead and implement the plans. In addition, set up regular audits to make sure the funds are always accessible.
7: Store Your Plans. Finally, store the plans where access is controlled, tamper evident, fireproof, waterproof, redundant, and without multiple multi-signature backups in the same location. If you lose the keys and you lose the backups, you’ll be out of luck … and so will your heirs.
Reference: Coin Journal (April 21, 2017) “The 7 Steps of Estate Planning for Bitcoin and Other Digital Assets”