Bitcoin estate planning
Bitcoin Estate Planning: Bridging the Legal and Technical Gap
The Problem: Traditional Estate Planning Doesn't Cover Bitcoin Custody
Your clients with $100k-$1M+ in Bitcoin have worked with estate planning attorneys to create wills, trusts, and succession plans. The legal documents properly allocate "all digital assets, including cryptocurrency," to beneficiaries with appropriate tax planning in place. Everything looks perfect on paper. But there's a critical blind spot: the estate plan assumes someone will be able to access the Bitcoin when the time comes.
With self-custodied Bitcoin, access requires technical knowledge and specific information that isn't typically documented in estate planning processes. The executor needs to know: where is the hardware wallet physically located? Where is the seed phrase backup stored? What's the PIN for the hardware wallet (if any)? Which software wallet should they use? How do they verify they're sending to the correct address? Without this information, even a perfectly drafted trust is useless - the Bitcoin might as well not exist.
The Stakes: Bitcoin Can Be Permanently Lost
Unlike traditional assets, Bitcoin inheritance isn't only complicated but also fragile. If an executor doesn't know where to find a bank account, they will eventually discover it through tax documents or state unclaimed property databases. If they can't access a safe deposit box, a court order will be required to open it. However, Bitcoin lacks such safety nets. If the seed phrase isn't found, there is no customer service to call, no court order that can help, and no institution that can "reset the password." Bitcoin is gone forever, irreversibly and unrecoverably. This isn't theoretical: studies estimate that 3-4 million Bitcoins (roughly 20% of all Bitcoins ever created) are permanently lost, with a significant portion lost because holders died without adequate inheritance planning. At today's prices, that's over $200 billion permanently removed from circulation. Your client's Bitcoin doesn't have to become part of that statistic, but it requires intentional planning that goes beyond traditional estate documents.
The Coordination Challenge: Legal vs. Technical Knowledge
Estate planning attorneys are experts at legal structures, tax optimization, and succession planning. They can draft bulletproof trusts and ensure proper beneficiary designations. However, they typically don't understand the technical specifics of Bitcoin custody, including the difference between a hardware wallet and a software wallet, how seed phrases work, what happens if someone uses the wrong derivation path, or how to verify receiving addresses. Meanwhile, your clients may have technically sophisticated Bitcoin security setups, such as multi-signature wallets requiring 2-of-3 keys, geographically distributed backups, and passphrase protection. However, if this complexity isn't clearly documented in a way that integrates with the estate plan, it creates more problems than it solves. The attorney needs to know how many signatures are required and who holds the keys to draft appropriate provisions. The technical setup needs to align with the legal structure. Without coordination between these domains, you get estate plans that look good on paper but fail in practice.
The Missing Piece: Technical Documentation and Heir Education
What's needed is a bridge between the legal estate plan and the technical Bitcoin implementation. This means creating documentation that doesn't just say "my Bitcoin is in self-custody" but provides specific, actionable information: "My hardware wallet is in the safe in my home office, combination [X]. My seed phrase is stamped on metal washers threaded on a bolt in my safe deposit box at [Bank, Box #X]. To access the Bitcoin, use Sparrow Wallet software [link], restore from seed phrase, connect to wallet, verify the balance matches [amount], and send to beneficiary address after verifying it character-by-character."
This level of detail doesn't belong in the legal will or trust (it is too specific and too technical), but it needs to exist somewhere that the executor will find it and be able to follow. Additionally, many families benefit from heir education before it's needed - a session where adult children learn what Bitcoin is, how Dad's custody setup works, and what they'll need to do when the time comes. This reduces panic, prevents mistakes, and ensures someone in the family knows to execute the plan.
How We Help: Technical Estate Planning Coordination
This is where Connelly Bitcoin Partners provides value in your client's estate planning process. We work alongside you and your client's estate attorney to handle the technical coordination of Bitcoin. We create the Letter of Instruction that documents exactly where everything is located and how to access it. We review the estate attorney's legal documents to ensure they align with the technical reality of the Bitcoin custody setup (for example, if it's a 2-of-3 multi-sig, the trust needs to address who holds which keys). We can meet with heirs to provide education on what they'll inherit and how to access it. We also offer ongoing technical support - if the executor calls us after your client's death, we can guide them through the recovery process. We don't provide legal advice (that's the attorney's role) and we don't offer financial advice (that's your role). We handle the technical implementation that makes the estate plan actually executable. Please think of us as the third leg of the stool: attorney (legal), advisor (financial), and us (technical). Together, we ensure your client's Bitcoin doesn't become an inheritance horror story.
