Introduction: The Inheritance Challenge
Bitcoin's greatest strength—self-custody without trusted third parties—becomes its greatest challenge when you die. Traditional assets (bank accounts, brokerage accounts, real estate) transfer through legal processes. Bitcoin doesn't care about wills, probate, or next-of-kin.
If your heirs don't have access to your keys, your Bitcoin is lost forever. But giving them access now means trusting them completely—and exposing yourself to theft. This module shows you how to solve this dilemma.
The Uncomfortable Statistics
An estimated 3-4 million Bitcoin (15-20% of all supply) is permanently lost, much of it due to death without proper succession planning. The average person has about a 0.5% chance of dying in any given year. If you hold Bitcoin, you need a plan.
The Core Dilemma
Inheritance planning for Bitcoin requires solving an impossible-seeming problem:
- Security now: Your heirs should NOT be able to access your Bitcoin while you're alive
- Access later: Your heirs MUST be able to access your Bitcoin after you die
- No trusted authority: Unlike a bank, there's no institution that can mediate this transition
Bad Solutions (That People Use Anyway)
❌ Give heirs your seed phrase now
Problem: They can steal your Bitcoin at any time. Family disputes, divorces, financial desperation—any of these could lead to loss.
❌ Put seed phrase in a safe deposit box mentioned in will
Problem: Probate can take months. Box contents may be inventoried by bank employees. Heirs might not know to look there.
❌ Tell an attorney
Problem: Attorneys can be hacked, disbarred, die, or simply be untrustworthy. They may not understand Bitcoin.
❌ Use a custodial service with beneficiary designation
Problem: Defeats the purpose of self-custody. The service can be hacked, seize funds, or go bankrupt.
Technical Solutions for Inheritance
Better solutions use cryptographic techniques to create conditional access that activates only when needed.
Solution 1: Multi-Sig with Dead Man's Switch
Create a 2-of-3 multi-sig wallet where:
- Key 1: You hold (for normal spending)
- Key 2: Trusted family member or attorney holds
- Key 3: Held by a dead man's switch service or time-delayed release
How it works: While alive, you use Key 1 + Key 2 for transactions (or just Key 1 if you keep 2 accessible). After death, Key 2 + Key 3 become available when the dead man's switch triggers, allowing your heir to spend.
Key Insight
The heir with Key 2 alone cannot steal your funds—they need two keys. You can keep Key 3 secured in a way that only releases after your death/incapacitation.
Solution 2: Shamir Secret Sharing (SSS)
Shamir Secret Sharing splits your seed phrase into multiple "shares." You need a threshold (e.g., 3-of-5) to reconstruct the original seed.
- Example: Split into 5 shares, need any 3 to recover
- Give shares to: spouse, child, sibling, attorney, safe deposit box
- Any 3 parties can recover, but 2 alone cannot
SSS Limitations
SSS has risks: the shares must be combined on a single device to reconstruct the seed, creating a moment of vulnerability. Also, share holders might collude while you're alive. It's best used for recovery after death, not ongoing security.
Solution 3: Time-Locked Transactions
Bitcoin supports time-locked transactions (CLTV/CSV). You can create a pre-signed transaction that gives funds to your heirs, but which can only be broadcast after a specific date or block height.
- Create a transaction sending your Bitcoin to heir's address
- Time-lock it for 1 year in the future
- Give the signed transaction to your heir (or attorney)
- Each year while alive, create a new transaction and destroy the old one
Downside: Requires ongoing maintenance. If you forget to refresh, your heir can take the funds while you're still alive.
Solution 4: Letter of Instruction + Hidden Backup
The simplest approach that works for many situations:
- Create a detailed "Letter of Instruction" explaining your Bitcoin holdings and how to access them
- Store your seed phrase in a secure location your heirs don't know about
- Use a dead man's switch to send the letter (revealing the location) after your death
This doesn't use cryptographic tricks—it relies on information compartmentalization.
Special Consideration: Mobile/Secure Enclave Keys
If you use a collaborative custody service like Theya, one of your keys may be stored in your phone's Secure Enclave. This creates unique inheritance challenges:
Secure Enclave Keys Cannot Be Backed Up as Seed Phrases
Unlike hardware wallet keys, Secure Enclave keys exist only inside your device's secure hardware. They cannot be extracted, exported, or written down as a 24-word phrase.
- The key is backed up only through encrypted device backups (iCloud for iPhone)
- If you lose your phone AND its backup, the key is gone forever
- Your heirs cannot recover this key by finding a piece of paper—they need device access
Inheritance Planning for Secure Enclave Keys
- Ensure device backups are enabled and your heir has access to the backup account (Apple ID credentials)
- Document the device passcode in your inheritance materials (the phone is useless without it)
- Contact the provider (Theya, Casa, etc.) to understand their inheritance process—they hold a key that can help
- Remember: multi-sig provides redundancy. In a 2-of-3 setup, losing the mobile key means your heir needs the remaining two keys (hardware wallet + provider assistance)
Why Services Use Secure Enclave Keys
This isn't a bug—it's a security feature. A Secure Enclave key cannot be stolen by malware, copied during a SIM swap attack, or extracted if your phone is seized. The tradeoff is that recovery requires the physical device (or its backup). For many users, this is excellent security. For inheritance, it requires extra documentation.
Choosing Your Heirs
Technical solutions only work if you've chosen the right people to receive your Bitcoin.
Considerations for Choosing Heirs
- Technical competence: Can they actually recover and use Bitcoin?
- Trustworthiness: Will they follow your wishes and not steal from each other?
- Stability: Are they likely to be alive, competent, and reachable in 10-20+ years?
- Legal status: Are they in a jurisdiction where receiving Bitcoin is legal?
- Financial maturity: Will they manage the inheritance responsibly?
Preparing Non-Technical Heirs
If your heirs don't understand Bitcoin, you need to either:
- Educate them: Walk them through the basics now, while you can explain
- Provide detailed instructions: Write step-by-step guides for their technical level
- Designate a technical advisor: Someone who can help them recover without stealing
- Use a professional service: Companies like Casa offer inheritance services (with trade-offs)
The Inheritance Documentation Package
Create and maintain these documents:
- Inventory: List of all Bitcoin holdings (wallets, amounts, types)
- Location guide: Where to find each seed backup
- Recovery instructions: Step-by-step guide for restoring wallets
- Contact list: Trusted technical advisors who can help
- Warning list: Scams to avoid, services NOT to trust
- Tax notes: Cost basis information for inheritance tax purposes
Storage: Keep this package secure but accessible to those who need it after your death.
Legal Considerations
Bitcoin inheritance exists in a gray area of law. While the technology doesn't require legal involvement, ignoring legal structures can create problems for your heirs.
Wills and Bitcoin
A will should mention your Bitcoin, but carefully:
- DO: State that you own Bitcoin and name beneficiaries
- DO: Reference your "Letter of Instruction" for technical details
- DON'T: Put seed phrases or specific addresses in the will (becomes public during probate)
- DON'T: Assume the will alone enables access—the keys still matter
Trusts for Bitcoin
A trust can offer advantages:
- Avoids probate: Assets transfer immediately without court involvement
- Privacy: Trust contents aren't public record
- Control: You can set conditions (age, distributions over time, etc.)
- Complexity: Requires attorney knowledgeable in both trusts AND Bitcoin
Tax Implications
In many jurisdictions, inherited Bitcoin receives a "stepped-up basis" to fair market value at the time of death. This can significantly reduce capital gains taxes for heirs compared to gifting Bitcoin while alive.
Jurisdiction Matters
Tax laws vary dramatically by country and change over time. Consult a tax professional in your jurisdiction. This is especially important if you or your heirs live in different countries.
Finding Professional Help
Look for professionals who understand BOTH traditional estate planning AND Bitcoin:
- Estate attorneys: Must understand that "leaving Bitcoin" means leaving access to keys
- Tax professionals: Should understand cost basis tracking and crypto-specific rules
- Financial advisors: If used, must be fee-only and Bitcoin-literate
Inheritance Plan Templates
Here are example inheritance setups for different situations.
Plan A: Simple (Single Heir, Trusted Relationship)
Situation: You have a spouse or single child you trust completely.
- Setup: Standard single-sig wallet with passphrase
- Heir access: Dead man's switch sends Letter of Instruction revealing seed backup location
- Secondary protection: Heir doesn't know about Bitcoin until switch triggers
Pros: Simple to set up and maintain
Cons: If heir finds backup location, they could steal
Plan B: Multi-Sig (Multiple Heirs or Trust Issues)
Situation: Multiple children, blended family, or partial trust.
- Setup: 2-of-3 multi-sig
- Key distribution: You (Key 1), Attorney/trusted advisor (Key 2), Encrypted backup with dead man's switch (Key 3)
- Heir access: After death, heirs work with attorney (Key 2) and receive Key 3 from dead man's switch
Pros: No single party can steal. Heirs can't access without your death triggering the switch.
Cons: More complex. Attorney must be trustworthy and understand multi-sig.
Plan C: Distributed (Maximum Paranoia)
Situation: Large holdings, distrust of any single party, multiple heirs in conflict.
- Setup: 3-of-5 multi-sig with geographic distribution
- Key distribution: You (Key 1), Spouse (Key 2), Sibling/parent (Key 3), Attorney (Key 4), Commercial custody service (Key 5)
- Heir access: After death, three of the remaining four parties must coordinate
Pros: Extremely resistant to any single point of failure or collusion
Cons: Complex coordination. Risk of keys being lost as people die/move.
Plan D: Commercial Service (Convenience Over Purity)
Situation: Non-technical heirs, want professional management.
- Setup: Use a service like Casa or Unchained Capital that offers inheritance planning
- How it works: They hold one key, you hold others, they facilitate transfer upon verified death
Pros: Professional support, non-technical heirs can receive help
Cons: Third-party involvement. Service could change policies, get hacked, or go bankrupt.
Implementation Checklist
Use this checklist to implement your inheritance plan.
Phase 1: Planning
- Decide on technical approach (single-sig, multi-sig, SSS, etc.)
- Identify heirs and their technical capabilities
- Choose trusted advisors/keyholders if using multi-sig
- Decide on dead man's switch service
Phase 2: Documentation
- Create inventory of all Bitcoin holdings
- Write recovery instructions appropriate for heirs' technical level
- Document seed backup locations (separate from the backups themselves)
- Create list of warnings (scams, services to avoid)
- Record cost basis information for tax purposes
Phase 3: Technical Setup
- Set up wallet structure (multi-sig if applicable)
- Distribute keys/shares to designated parties
- Configure dead man's switch
- Test that heirs/advisors can access what they need to
Phase 4: Legal Integration
- Update will to mention Bitcoin (without revealing keys)
- Consider trust structure if appropriate
- Brief attorney on Bitcoin specifics (if they hold a key)
- Document for tax/estate purposes
Phase 5: Ongoing Maintenance
- Check in with dead man's switch regularly
- Update documentation when holdings change
- Review and update as heirs' situations change
- Verify keyholders/share holders are still capable and reachable
- Annual review of entire inheritance plan
Key Takeaways: Inheritance Planning
- Bitcoin doesn't transfer automatically. Without access to keys, your heirs cannot claim your Bitcoin regardless of wills or legal status.
- Balance security and accessibility. Your heirs need eventual access, but not before you're actually gone.
- Multi-sig and dead man's switches solve the dilemma. They create conditional access that activates only when needed.
- Prepare your heirs. Non-technical beneficiaries need instructions, education, or designated technical advisors.
- Legal structures still matter. Wills and trusts provide legal clarity, even though the keys control actual access.
- Document everything (securely). Your heirs can't recover what they don't know exists or can't find.
- Maintenance is required. Inheritance plans decay: people die, move, become untrustworthy. Review annually.
Next: Living on Bitcoin Standard
You've learned to secure your Bitcoin for yourself and your heirs. The final module covers the practical reality of living on a Bitcoin standard: earning, spending, and existing in a Bitcoin-native way.
⚡ Apply This Knowledge
Practice on a real Bitcoin test network — free coins, zero risk.
Set Up a Watch-Only Wallet
Import your hardware wallet xpub into Sparrow to monitor balances and verify addresses — without ever connecting your private key to the internet.
Create a 2-of-3 Multisig Wallet
Build a real 2-of-3 multisig in Sparrow: create 3 signer wallets, export xpubs, assemble the vault, fund it, and co-sign a spend with PSBT. Full testnet practice.