Bitcoin Estate Planning and Asset Recovery
If something happened to you today, would your loved ones be able to recover your cryptocurrency assets? Unfortunately, this is a question that many cryptocurrency investors do not ask themselves.
Has a loved one passed away and left you wondering how to recover their cryptocurrency assets? You are not alone, and Bitconsult is here to help. Every asset recovery is unique. Most situations require one-on-one consultations to determine the best recovery strategy. If you need help, please contact us for a no-cost initial consultation.
Not ready to make the call? We’ve put together the following guide to help individuals familiarize themselves with common asset recovery situations.
Asset Recovery
The first step of Asset Recovery is determining what assets were owned and how they were secured. Unfortunately, if the client had very good Operations Security (OPSEC), they may have kept this information confidential. Just like a goldbug who hides gold bullion on their property, or a doomsdayer stuffing cash into their walls, Bitcoiners are known to be a little extra “careful” with their assets. For this reason, it’s important to work with your loved ones now in establishing an estate plan (we can help). If an estate plan has not been established, we’ll have to search the common methods of holding one by one.
Secure Critical Information!
As soon as possible, secure the decedent’s cell phone, as it will likely be critical in asset recovery. If possible, identify all important user accounts, email addresses and passwords. Secure any finance-related documentation. If you find any passwords, or lists of seemingly random words, secure these as they may be critical in recovering cryptocurrency assets. Finally, secure any computer hardware, particular any devices that look like USB sticks. Do not share this information or hardware with anyone until you speak to an expert!
There are many methods for storing cryptocurrency:
- Exchanges
- Hardware Wallets
- Paper Wallets
- Mobile/Desktop Wallets
- Web Wallets
Let’s start with the easier examples and work our way down.
Cryptocurrency Exchanges
Many investors hold their cryptocurrency on exchanges. Recovering exchange funds is typically simple, but there are exceptions. If your loved one held funds on an exchange that is licensed in your area, the estate would typically start recovery by contacting the exchange where the funds are held. Most exchanges, like Coinbase, have a process for transferring the decedent’s assets to the estate. This typically involves contacting the exchange to inform them of the situation and providing legal documents such as death certificates, last will and testament, ID’s, and probate instructions. Common U.S. licensed exchanges are listed below:
- Coinbase
- Gemini
- Kraken
- Bitstamp
- Bittrex
- Robinhood
- Square CashApp
These exchanges are licensed to operate in the U.S. and require customers to submit identification (known in the industry as Know Your Customer “KYC” and Anti Money Laundering “AML” requirements).
There are rogue exchanges in operation that do not require identification and sometimes do not even require a customer’s real name. The standard probate recovery process is likely not possible through these exchanges. Instead, the client’s login information for these exchanges would need to be found. The estate would then need to log into the account and transfer the assets out of the exchange to a licensed exchange where the funds can be held or converted to USD. The following is a list of popular non-KYC exchanges:
- Binance
- Bitfinex
- Changelly
- Hotbit
- STEX
Hardware Wallets
Many cryptocurrency investors choose to hold assets on hardware wallets. These are devices created for a single purpose – to store your coins securely. The following are popular hardware wallet manufacturers:
- Ledger
- YubiKey
- Trezor
- OpenDime
In order to recover funds from a hardware wallet, you’ll likely need physical access to the wallet as well as a PIN or password. Recovery differs by device, but in general the device is plugged into a PC, a PIN is entered, and wallet software is launched on the computer. Once the software is launched, funds can be sent from the wallet to an exchange where the cryptocurrency can be sold for USD.
Most hardware wallet users store their PIN in their head or in a secure location, like laminated and stored in a wall safe. If the PIN or physical device are not located, funds can be accessed by another means – namely restoring the seed phrase that was created when the wallet was made.
Seed phrases are the “passwords” for unlocking bitcoin held in private wallets. Seed phrases are typically 12 to 24 random words that typically look something like this:
While seed phrases were initially made to make bitcoin recoverable through your choice of wallet, there have been different methods used to generate seed phrases over time. Hopefully, the seed phrase + recovery method are listed together. If not, some work may need to be done to determine how the seed phrase was generated and how it can be restored. If a seed phrase is found for a specific wallet, like a Ledger Nano S, the manufacturer’s website should be referenced for help in recovering assets. Here’s Ledger’s recovery guide: https://support.ledger.com/hc/en-us/articles/360005434914-Restore-from-recovery-phrase
Paper Wallets
Paper wallets are pretty much just seed phrases or private keys that can be used to access a wallet and send bitcoin transactions. Just like the hardware wallet seed phrases, these lists of words can be imported into a wallet in order to “unlock” funds. If you find a list of seed words, but no hardware wallet, you may be dealing with a paper wallet. Alternatively, if you find a string of 64 alphanumeric characters, you may have a private key on your hands. Private keys are treated much like seed words, but can sometimes be a little more difficult to recover as not all wallets accept private key imports.
If you find seed words or private keys, you have to be extremely careful recovering paper wallets. These keys can be used to completely liquidate a wallet. There are many phishing websites designed to trick you into importing a private key or seed phrase. If you find a paper wallet, it is recommended that you contact us immediately.
Mobile and Desktop Wallets
The client’s phone and computer should be accessed as soon as possible to determine if any funds are held in mobile or desktop wallets. Typically, as long as you have access to the device, you should be able to access the funds in mobile and desktop wallets. However, sometimes an additional password or PIN is required.
Common mobile wallets:
- Samourai
- Exodus
- Blockchain
- Mycelium
- Bitpay
- Coinbase Wallet
- Crypto.com Wallet
- Coinomi
If coins are stored on a PC, they are likely on a desktop wallet. Desktop wallets are software that you download and execute locally on your computer. Desktop wallets typically utilize wallet files called “wallet.dat”. Desktop wallets typically connect to web servers and may require some time to update. Clients could also be utilizing “full node” wallets, which need to sync entire blockchains before funds can be sent. Typical desktop wallets are listed below:
- Electrum
- Bitcoin Core
- Bitcoin Armory
- Exodus
- Atomic Wallet
A more complete description of cryptocurrency wallets can be found here.
Web Wallets
Finally, cryptocurrency could be stored in web wallets. These wallets typically require you to login to a website with a username and password. Here are some common web wallets:
- Blockchain.info
- Green Address
- CoPay
- BitGo
- Jaxx
Conclusion
Hopefully you learned a bit about the important of properly securing your coins and creating an estate plan. If no guidance is left, the recovery process can be very messy or even impossible!
If you need help establishing security procedures, estate plans or asset recovery, do not hesitate to contact our experts and book a consultation!