E339 Why Sharing Your Seed Phrase is a Bad Bitcoin Inheritance Plan

10/11/23 • 9 min

In this episode, we will talk about self-custodied bitcoiners (not those who have their coin on an exchange or with a third party). Some bitcoiners share their seed phrase with their spouse or adult children. Or perhaps they share their cloned wallet with those trusted individuals. It’s temptingly easy, essentially frictionless to share your seed phrase. But, as we’ll discuss, it can be insecure for reasons you may not think of. Sharing your seed phrase can be dangerously inflexible and not future-proof. Relationships change One reason that this plan is not flexible is because relationships change. Married couples can become divorced or widowed. You may have a falling-out with a loved one. Your relationship with your child may be good now, but the relationship could become strained or even estranged. If this happens, you may not want them knowing your seed phrase. That’s like giving the keys to the kingdom to someone you don’t trust anymore. They’ll won’t keep it secure Say you give your seed phrase to your spouse or adult son. No matter how wonderful they are, your loved one may not realize how important it is to keep your seed phrase safe. It’s not that they have bad intentions, they may just have bad operational security. Imagine if they tape your seed phrase to the refrigerator so they don’t forget! Besides exposing it, they may lose your seed phrase altogether. Don’t think that you’ll be successful in training or teaching your trusted loved one. Remember, self-custody is like a completely foreign language to them. When you first started with bitcoin, how many months or years did it take for you to understand how it all works? Your spouse or son might not want to learn about bitcoin, so they might take a photograph of the seed phrase or put it on a password manager app. What about giving them a clone hardware wallet instead? All they need to do is remember the PIN to open it. This still isn’t a great idea for the same reasons we just discussed. Keeping the hardware wallet up to date is a job. There may be updates every couple of months, and your spouse or son needs to remember to manage those updates. Besides, there is the risk of hardware failure. If your loved one doesn’t have the seed phrase and the hardware wallet is the only way to access your bitcoin, you’re looking at catastrophic loss. Even more robust external hard drives fail. Such technology could be outdated and difficult to open after many years. You can't take back a secret Once you’ve shared the seed, you can’t take it back. Think back to grade school: you tell someone your deepest secret and then realize that kid is a blabbermouth! You can’t undo what’s been done. Same with sharing your seed phrase. What if your relationship with that trusted person changes? You’ll need to create a new wallet and transfer your funds, otherwise your “secret” is with an untrustworthy person. We see this with our non-bitcoin clients. They make a treasure map or write a letter of instruction telling their trusted person where everything is located. Once you create that treasure map or letter, you have to keep it up to date constantly. Life changes could occur making it inapplicable. Similarly, if you don’t trust that person anymore, you need to move everything and make new maps and letters. Now you know why it is not secure to share your seed phrase. Hopefully this helps you to make the best bitcoin inheritance plan for your situation. I am working on my bitcoin book, and I hope to get it out there soon! In the meantime, check out my book, “How to Hire an Executor”, available on Amazon. If you are a bitcoiner, you may want to consider hiring a professional executor to navigate this complex component of your estate. Request your free consultation

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E338 Should I Sell My Home Before I Die?

This is a very common question that we get from Solo Agers. We’ll review the pros and cons of making that decision. Reasons to sell your home before you die The biggest reason Solo Agers want to sell their home before they die is because they don’t want to leave a mess for their loved ones. Otherwise, there may be a lot of cleaning, maintenance, and packing for the heirs to do. Additionally, the house may need renovations before it is in sellable condition. Another reason is that Solo Agers may want to downsize anyway. Downsizing is a different topic, so we won’t focus on that here. Reasons to leave selling your home to your executor after you die I often suggest that our Solo Agers live where they want and leave the task of selling the home to the executor after they pass. Don’t spend your final years cleaning, packing, staging, and moving if that’s not what you want to do. It’s probably not on your bucket list to clean out your garage before you die. Do those things you always wanted to do. Enjoy life! If you still feel that obligation to put things in order for your heirs, please know that probate is a mess no matter what. Don’t bother trying to leave it perfect. What if you clean out your home and you live longer than you expected? Now a new mess will accumulate. Even if you could know the exact date of your death, it still won’t work out perfectly. Another example of “helping” heirs is making treasure maps to your keys or passwords. Don’t do it. You may move your keys or change your password and forget to update your treasure map. You don’t need to spend your final days and years making your death convenient for everyone else. If you are still worried about burdening your heirs or executor, you could hire a professional executor. This could be us, or a bank, or a fiduciary company. It is the job of the professional executor to handle the cleanout, renovations, etc. Because we do these things so often, it’s not a big deal for us. And if something complex were to happen, then that’s our job, too. That’s what we get paid for. You can rest knowing that your professional executor is experienced and capable. You won’t have to burden your heirs with the tasks, and you won’t have to spend your final years worrying about what will happen after you die. Most Solo Agers are relieved when they learn that a professional executor can handle all of this. My book, “The Solo Ager Estate Plan,” can help you decide which tasks (if any) you should worry about before you die. I enjoy meeting more and more Solo Agers; it’s a growing population. As I work with them, I also learn a lot of things that I can pass along to all of you.

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E340 Reasons Not to Make a Loved One the Executor

We’ve talked before about not making a loved one your executor. I recently read an article titled, “2 Big Reasons Not to Make a Loved One the Executor of Your Estate.” Here, we’ll add our own perspective for why it’s not a great idea.

Being executor can be emotionally difficult

It is a duty that begins almost immediately after the death of your loved one. You are grieving the loss while facing a list of daunting tasks. Even normal probate is a lot of work and can be tough while grieving.

In a somewhat difficult probate, you navigate the decedent’s family and friend relationships. If you are also family and friends with these people, it can be awkward. They will continually ask you when they will receive their inheritance. Some will complain that they get less money than others. You may not get far into the probate process before this happens.

It goes without saying that a difficult and dramatic probate is even more burdensome and draining.

Being executor is long and time consuming

If you think probate lasts a few weeks or months, think again! Probate lasts many months and sometimes many years. Over the past few years, we’ve seen probate take longer than ever.

Many of the executor’s tasks must be done in person. This means walking into a bank and taking care of the assets face-to-face. It is very inconvenient, especially if the executor works and has a busy home life. The executor cannot delegate responsibilities by power of attorney. An attorney can help with many tasks, but not all.

Things an executor needs to know

The executor should have an understanding of legal issues and risks of being executor! An executor is personally liable for mistakes they make during the probate process. This includes asset valuations, purchases, sales, tax complications, failure to pay debts, and more. The executor is liable out of their own pocket. Creditors can come after the executor’s bank and brokerage accounts and their home.

There are a lot of tax issues when administering an estate. The taxing authorities know that this is their last chance to wring every last cent out of that social security number. The IRS will go through the assets with a fine tooth comb. What if your executor doesn’t have the skills to manage assets? The executor should be able to manage real estate, financial assets, and unique assets such as small businesses, collectibles, and bitcoin. If your executor doesn’t have an existing skill set for managing assets, don’t count on them learning when you pass. It’s too much to ask someone to learn how to manage assets while they are mourning.

Many people think things will be fine as long as their executor hires the right people (lawyer, CPA, etc.). It is important to have a good team during probate, but it is not enough. Each of these professionals have their own incentives and opinions. And remember, none of them are personally liable. Just because you hire a lawyer to help with probate doesn’t mean you will get the best advice. Even if your CPA is great at doing your income tax returns doesn’t mean they know how to do tax returns for an estate. You need professionals who have a solid understanding of probate.

The article we reviewed also recommends working with experienced professionals. People are starting to hear more about professional executors. Whereas, even 5 years ago, it wasn’t quite as popular. If you want to learn more, check out my book, “How to Hire an Executor.” When people understand what professional executors do, they like the option. They are thrilled to have that burden lifted off of their loved ones.

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