Or, how to manage volatility’s ultimate endstate: Death.
In a previous article, I shared some guidance on how to introduce new people to Dash and other cryptocurrencies: “Introducing FOMO Friends and Family to Cryptocurrencies“. Within that article, we touched upon end-of-life matters. In this article, we expand that topic and give it a bit more consideration.
Answer this question: What happens to your cryptocurrency hodlings if you get hit by a bus?
For the vast majority of readers, I bet the answer is something quite unfortunate: Your holdings go dormant indefinitely and your heirs get nothing. How much value would be lost simply because no one knew what you held? How you held it? Or how to access it now that you are gone?
You really owe it to your loved ones to ensure that your passing is not a rat’s nest of complexity requiring detective work to figure what you may or may not have left them. Additionally, death is not the only consideration. What if you become incapacitated? Those funds could be the difference between a life of comfort and recovery, or a life full of avoidable challenges.
Chances are, most of us are ill-prepared in the event something catastrophic happens. Most people die without a will or trust. In a world where most everything you own is held or tracked by a custodian (a bank, a mortgage company, a mutual fund, etc), dying without a will is still a PITA for your heirs, but manageable. In any event, the associated funds will not be lost. The courts know what to do with traditional assets. Finding these accounts is not terribly complex and since they are custodial, your heirs only need legal authority to grant them access.
Cryptocurrencies are different. Funds held in wallets outside of exchanges are utterly controlled by the person who holds their private keys — powerful and fundamentally more secure, but it leaves your heirs vulnerable to loss if those keys are mismanaged.
(Important caveat: I am not an attorney. Nor am I a financial adviser. Please consult with the appropriate professional before restructuring your financial portfolios or communicating with your relatives.)
These are the to-do items everyone needs to iron out, regardless of whether or not they own cryptocurrencies.
1. A Will or Trust
2. Named beneficiaries within your retirement and insurance plans
3. Medical Power of Attorney and Living Will
4. Additional information and instruction
A cryptocurrency game-plan
That #4 above is a doozy. This is where you need to ensure you have detailed instructions describing how to get to your cryptocurrency holdings. Let’s walk through what this means — Security, Awareness, Access …
How secure are your funds? Here’s a great article to get you thinking about this: “Dash Security/Safety Tip Basics“. Most importantly though…
Have you written down your backup information?
Seeds, Pins, Passwords. Pins and maybe passwords may only be needed if someone is trying to access your wallets through your device, but write them down anyway. If you have not written down this information, drop everything you are doing and do it now.
How have you recorded your backup information?
Pen on paper is really the most secure. Storing sensitive data in a password manager or in some password file in the cloud or even on your computer is simply not secure enough. Pen + paper. That’s how you do it. If you are currently using one of these services, consider transferring all that to paper and then deleting that data. Additionally, consider opening up new wallets, writing down the relevant new backup/recovery information, and then transferring your funds to those new, now significantly more secure, wallets. Yes, I know there are ways to secure information in the cloud, but pen + paper is still the most robust archival method and much easier for your heirs to understand and manage.
How have you stored your backup information?
Pen + paper; duplicated; stored in at least two locations.
Fire safes are good. Buy a good fire safe. Good safes are expensive, but worth it. If your safe was cheap, it’s better than nothing, but you really should spring for a better safe. A second storage location is needed as well. Either a 2nd fire safe, or between the pages of your favorite, but drab, book on soil-science in your 500 book library, or… simply some place not obvious but relatively secure and accessible. Security through obscurity is actually rather effective in the physical world. Maybe put it all in a sealed envelope so you will notice tampering. You want to be able to update your records without having to go to extraordinary lengths to do so.
Pro-tip: Put a small desiccation packet in your fire-safe to combat trapped moisture/mildew issues.
Don’t brag about your brilliant investment prowess.
Being private about your holdings will go a long way towards ensuring you and your heirs keep them. Plus, it simply changes the nature of your relationships, usually in a negative way.
Use a good hardware wallet.
Trezor; Keepkey; Ledger. They all make high quality hardware wallets. If you have substantial holdings, you really must use something more secure than a mobile wallet, and definitely more secure than an exchange, to hold those funds. Avoid paper wallets. They are super secure, but also error prone for someone unfamiliar with them… like your heirs.
Don’t get super fancy.
If you use 30 wallets, that is a lot of recovery information to manage and specialized instruction to deliver. Use 30 wallets for play money, but for the bulk of your investments, stick to just a few. Simplify!
What did I do? I bought a Trezor Hardware Wallet, shoved the bulk of my investment into it and reduced my mobile wallets down to a couple that hold very little. In my model, the hardware wallet secures my savings and my mobile wallets secure my working capital.
As with all assets, you will greatly help your heirs if they are simply aware of your holdings. And this holds true for all of your assets and even some of your liabilities. Feel free to write out most of this as a typed document leaving blanks for all the sensitive information that you then fill in by hand. The summary introduction may look something like this:
I hold cryptocurrencies in these wallets and exchanges (access details to follow): Coinbase (exchange), Kraken (exchange), The Dash Wallet (mobile), Mycelium (mobile), Trezor (hardware wallet).
I also have IRAs with custodian X and a small fund with custodian Y.
I have a sizable reoccurring monthly subscription with VPS provider V that can be canceled immediately.
I have $10,000 of emergency cash in a 50 caliber ammo can hidden to the left of the oak tree next to the driveway at address XXX. Aunt Myrtle and my sister know where it is, as does my trustee.
Please note: I hold valuable information relevant to inheritance in these locations: firebox in bedroom closet, attorney Bob Marley (+1-347-555-2368), a Wells Fargo bank vault on Smith Street NYC, and in a buried 50 caliber ammo can (see above).
That last bit may be something to deliver to several of your relatives today, well before you get hit by a bus.
Inform folks where your keys, passwords, and seeds are located and how to use them. Our document continues…
The exchanges listed above may have USD and cryptocurrency funds held by them in my name. Please go through the normal probate process to secure those funds.
The seeds, pins and passwords for my various off-exchange wallets are:
Trezor (hardware wallet, one of which is in the fire safe):
- seed: chest soul argue visit mirror …
- pin: 12344321
- password 1: <some righteously good password> (large balances)
- This set of accounts holds Dash, Ether, Bitcoin, and Zcash
- password 2: <simple or even no password> (small balances)
- This set of accounts holds a small amount of Dash
The Dash Wallet (mobile device):
- seed: spatial fish zone lift …
- pin: 12344321
- Note1: In Android’s or Apple’s app store, this will be listed as developed by “Hash Engineering”
- Note2: May take many hours to fully sync with the network after recovery before given access to
- This wallet holds Dash only.
Mycelium (mobile device):
- seed: subway among lion garlic pottery …
- pin: 123443
- Note: After installing the wallet. Create two accounts within wallet HD(1). Both will contain funds.
- This wallet holds Bitcoin only.
You get the idea.
If you use a multi-currency wallet, make sure you list all the currencies it holds. If a wallet holds the same currency in multiple accounts (like the Mycelium wallet in my example above), ensure you mention that as well. If there are multiple seeds needed to reconstruct all the funds in a particular wallet application, ensure you describe this fully, but clearly.
If you hold truly substantial amounts, you may consider dividing your seed phrases each in half and storing each half in more than one location. If you have a trusted executor named (like I do) perhaps let them have 1/2 the seed phrases (and make sure they secure them). If any of these wallets require multiple people to unlock the wallet (multisig), you have to explain how this is accomplished. If two people can unlock the account from two different wallets (1 of 2+ multisig) you really need to make people aware of this and the implications (that one of the parties essentially co-owns those funds). More on this may be worthy of another article.
Also worth investigating: There are ways to wrap your more substantial holdings in a self-directed IRA. This would offer some bureaucratic buffer and protection for your heirs. Unfortunately, that is a topic well beyond the scope of this article. Finally, it may be wise to list names of very trusted “phone a friend”s that can be consulted for technical assistance. I have 3 people listed in my documents. I trust all three enough to do the right thing even if my heirs unwisely hand them the seed phrases.
Important: DO NOT give your full seed phrases to a trustee. They can clean out the inheritance and your heirs may be hard pressed to prove it.
Don’t put this off…
This is money. Real money. Take this exercise seriously. Don’t procrastinate. Get everything documented as best you can and then seek an expert.
As with all end-of-life matters, one should consult an expert who specializes in estate planning. They can provide valuable guidance so that your heirs can focus on grieving and not on the particulars of a your avant-garde investment portfolio. Ask about the pros and cons of wills versus trusts. Ask about tax implications. Challenge them to offer creative ways to manage seeds and keys. Don’t be afraid to use a different counselor if your chosen estate planner struggles with these concepts.
Review your entire estate plan annually. But realize that change is continuous. If something changes substantially, it needs to be accounted for, documented, and your end-of-life instructions updated. Ultimately, whatever process you choose, err on the side of both security and manageability.
There you have it. I hope this inspires some of you to get off of your duffs (a Dash joke, har har) and get your crypto-lives in order so that you can rest easy when you are finally laid to rest.