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What are good ways to ensure my bitcoins can be inherited by my family when I die or become permanently incapacitated?

I think there are probably two significantly different situations to account for, each with different requirements:

Hot wallet inheritability

I want my family to be able to inherit the bitcoins from my hot wallet, but I'm not worried about them stealing those bitcoins or monitoring my public transaction history while I'm still living.

Cold wallet inheritability

I also want my family to be able to inherit the bitcoins from my cold wallet, but I'd prefer a solution that prevents them from being able to spend the bitcoins while I'm still alive. If possible, I'd also like to prevent them from determining my balance while I'm still alive.

  • It is acceptable for the solution to require periodic activity from me, such as moving my bitcoins every six months. For example, your answer may assume that OP_CHECKLOCKTIMEVERIFY has become consensus-enforced, as that's likely to happen within the next few months---and I hope to live that long.

  • Because I tend to use strong encryption when available, assume that all my data will be lost at my death unless I've specifically backed it up for other people to use.

I use Bitcoin Core for both my hot and cold wallets (with separate wallet files), but solutions for other Bitcoin software are welcome.

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Points for Hot Wallet Inheritability:

  1. Lower exposure to risks - use hot wallets that are BIP 39 compliant and share your 12 to 24 recovery passphrase and associated password in advance.
  2. Higher exposure to risk - share passwords on your devices that have hot wallets. BIP 32 compliant wallets make it easy to have the same logical wallet deployed on to multiple devices (e.g., cell phone and tablet).
  3. Highest exposure to risks - preload multiple instances of hot wallets on their devices.

Points for Cold Wallet Inheritability:

  1. BIP 38 compliant paper wallets allow your paper wallet's Wallet Import Format (WIF) private key (Base58Check encoded) to be AES encrypted, recoverable with a password. If you are worried about hiding the amount of the funds, just be sure your paper wallets do not have associated cryptocurrency addresses printed on them. (Cryptocurrency addresses are derived from associated associated private keys. If the private keys are encrypted, and an associated public addresses are not exposed, the amount of funds saved can remains a secret.)

  2. A multi-party escrow service is required to ensure your funds don't get spent before the "big event". Either an on-blockchain multisig service can be applied with m of n signatures being required or an off-blockchain Shamir's Shared Secret can be applied. The take-away point is that a sealed will is used as a mechanism (or a trusted 3rd party) is used to release the funds.

  3. High tech approach, less privacy where m of n signatures come together for an on-blockchain approach, which doesn't have the desired privacy.

  4. Low tech approach, desired privacy where enough Shamir Shared Secrets need to come together to reconstitute a passwords used by BIP 38 compliant paper wallets. Each heir could have their own unique paper wallets with a common passwords shared across all the wallets. It is also easier to change a will using this approach. The redistribution of updated shared secrets also gets the point across that either you are upset or happy with the behavior of your heirs.

FYSA, Some hot wallet application directly support the importation of BIP 38 encoded keys.

WARNING: As with all backup and recovery processes, perform dry-run tests in advance to be certain the backup and recovery processes are working properly. Also, perform key generation on a computer (preferably a spare one) that will never be connected to a network again,
print on a network enabled printer private cryptocurrency keys unless they are encrypted using something like BIP 38.

  • If going the BIP39 route, one might consider the use of a physical hardware wallet such as Trezor. – Jonathan Cross Aug 9 '15 at 11:51
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At the time of writing (summer 2015), the uk jurisdiction has not defined a specific inheritance tax for bitcoins. There might be some catchall wording in the existing legislation so that it does not matter to HMRC whether your jewellry box contained gold, silver, rubies, greek bonds, or something else; if it is insured as worth some £ then the taxman will want £. Check with a solicitor in your own country for catchall wording in the applicable inheritance tax legislation.

If your wallet uses Electrum then your hot wallet and cold wallet passdown may be acheived by the same means: i) make sure that you have shown at least one of your next of kin how to install an Electrum bitcoin wallet, AND how to get a wallet recovered when it first runs and asks the question ?restore wallet from existing passphrase or create a new one? ii) in a sealed envelope, in good ink on acid-free paper, write down your passphrase. This may look like 12 or more words in lowercase separated by spaces. iii) stash that envelope at the bottom of your jewellrybox. Follow the 2006 tax advice of George Osbourne and you can't be doing anything which is wrong according to him.

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