The 7 Steps of Estate Planning for Bitcoin and Other Digital Assets
Step 1: Take an Inventory
According to Morgan, the first step in estate planning for bitcoin and other digital assets is to take an inventory of what is already owned. While this may seem like a simple enough task at first, the reality is there are countless examples of people forgetting about some bitcoin in an old wallet and then finding it again years later.
“Do you really know what you have? Morgan asked during her talk. “You know what you’ve been using recently, but what about that Mycelium wallet that you have the backup for from two phones ago?”
In addition to listing all of the digital assets currently owned, it’s also a good idea to write down how each specific asset can be accessed again in the future, Morgan added.
Step 2: Separate Assets Into Tiers
Morgan’s next recommended step is to separate digital assets into three different tiers: easily spendable, mid-range storage, and long-term cold storage.
“You don’t want to lock up all of your bitcoin,” Morgan noted. “You may actually want to spend it [somewhat soon].”
Step 3: Plan for Each Tier
Once tiers are created, Morgan said a plan must be made for each of them in terms of balancing security, ease-of-use, and accessibility.
“When I say make a plan, I don’t mean think about it,” Morgan clarified. “First make a plan, but that’s not the end. You need to actually make the plan and write it down.”
In addition to assessing what’s already working, Morgan said a holder of digital assets should also looking into options with stronger security protections such as hardware wallets, multi-factor authentication, and multi-signature addresses.
“Please keep it simple,” Morgan added. “Security by obscurity means you lose your keys . . . There are way more stories about people forgetting their passphrases, forgetting their pins, forgetting where they put their backups — all of these things . . . What does work is being smart, keeping it simple, and creating a repeatable plan that you can audit and go through yourself and make sure that you can still access it.”
In terms of picking the right plan, Morgan noted that it’s all about finding the right spot on the spectrum from security to ease of use.
Step 4: Decide Who Gets What
Step four is the first step that involves actual estate planning. This step is all about deciding who gets what.
“It’s important to know that you need a tech plan and a legal plan for this,” said Morgan.
In terms of recommendations for dividing up one’s assets to be given to others, Morgan noted that the best rule of thumb is to stick with giving a percentage of each tier to particular people. With this method, individuals can avoid the unpredictable price fluctuations that would come with leaving specific amounts of specific digital assets for each person.
Morgan also pointed out that it’s of critical importance to make sure that heirs can technically access the digital tokens. This means the heirs must have access to important information such as passphrases or the location of a hardware wallet. It may also make sense to make sure someone will be available to help the heirs access or liquidate the assets when necessary.
In addition to making sure the heirs have access to the assets, the original owner of the assets can also decide under what conditions the heirs can gain access to the assets. When planning this aspect of the process, it’s important to keep local laws related to leaving money for heirs in mind.
Step 5: Test Your Plans
According to Morgan, step five is the most important of all the steps. This vital step is to test the estate planning plans from the perspectives of both the owner of the assets and their heirs.
“If you don’t test your plans, they will not work; I promise you, they will not work,” Morgan stated.
To start, Morgan suggested the use of a very small amount of value for the tests. This would limit losses in a scenario where something went wrong.
According to Morgan, it’s also extremely important to test every possible scenario of the plan’s outcome rather than what is most likely to happen. For example, if some sort of multisignature structure is used, every possible multisig-powered transfer of funds needs to be tested.
Step 6: Implement Your Plans
The next step is to go ahead and implement the plans. In addition to that, regular audits should be scheduled (with calendar reminders) to make sure the funds are always accessible. These audits could happen anywhere from once per quarter to once per year.
Step 7: Store Your Plans
The final step is to store the plans in a manner that is access controlled, tamper evident, fireproof, waterproof, redundant, and without multiple multisig backups in the same place.
“You don’t want to just store things in your family’s safe and that’s it because if something happens in that location, you could lose access to everything,” Morgan said. “Getting rid of third parties carries risks. One of the risks is that there’s no one to go to if you lose those keys. If you lose the keys and you lose the backups, you won’t be able to access the assets.”
Credit- http://coinjournal.net
Comments
Post a Comment