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Investing Bitcoin in a Trust

  • Investing bitcoin in a trust can reduce the risk of bitcoin being inaccessible after death
  • Strong security practices are required to ensure bitcoin is not compromised during the distribution process
  • Investing bitcoin in a trust ensures the original owners’ instructions for using and investing the bitcoin after death can be followed

Introduction

As confidence has risen about bitcoin’s ability to act as a secure long-term store of value, investors looking to preserve value and share it with future generations have become interested in including bitcoin in estate trusts. There are many benefits to including bitcoin in a trust, including reducing the risk of losing your bitcoin after death and ensuring your loved ones can benefit from its value and use. However, there are unique security concerns that must be addressed before investing bitcoin in a trust.

The Benefits of Investing Bitcoin in a Trust

There is value for both the managing investor and the beneficiaries of the trust to ensure that the wealth generated by long-term bitcoin investing is passed on to beneficiaries and loved ones. When done properly, investing bitcoin in a trust can reduce the risk of your bitcoin being lost after you die. It also keeps bitcoin out of probate, saving beneficiaries time and money, while keeping your bitcoin private and reducing the risk of exposure to digital attacks. Investing bitcoin in a trust means that the managing investor can ensure a trusted person can access and manage bitcoin, while creating clear instructions on how the bitcoin can be accessed and used, even after a death.

Beneficiaries Can Access Bitcoin Quickly

If bitcoin is distributed through a will, or if allocations are not made prior to death, the transfer of the bitcoin will be subject to a legal process known as probate. Probate is a legal process in which wills, property values, taxes, and debts are assessed and distributed to beneficiaries through a court of law. The probate process can take weeks or months, but the official value of the trust assets are assessed at the time of death.

Given the nature of Bitcoin price movement, the length of the probate process can have serious implications on the ability of beneficiaries to sell or otherwise gain access to the value of bitcoin. Holding bitcoin in a trust avoids the probate process, allowing beneficiaries to access the bitcoin much sooner. It also allows beneficiaries and the trust to avoid court costs associated with the probate process.

Bitcoin Holdings Remain Private and Secure

Another benefit of including bitcoin in a trust is the enhanced security it provides. The probate court process is public record, exposing your bitcoin holdings to anyone who is willing to read the court records. Trust documents are not public record; investing bitcoin in a trust prevents your bitcoin from becoming public record.

Another security concern for many investors is the potential for permanent loss of bitcoin after death. Bitcoin held in a non-custodial wallet does not have a paper trail or any other documentation that makes it easily recognizable in the event of sudden death. Hardware wallets are often inconspicuous, and there have been multiple instances of wallets being lost and never recovered simply because next-of-kin did not know that their existence, or they did not have the private keys necessary to claim ownership. Investing bitcoin in a trust relies on a trustee to be able to access and manage your bitcoin in accordance with your directive, reducing the risk of loss after death.

Learn more about public and private keys.

How to Invest Bitcoin In a Trust

Overall, wisely investing bitcoin in a trust is no different than any other asset. It is imperative to always invest bitcoin in your trust according to your investment principles and goals. During your lifetime, establish best practices for long-term bitcoin storage in order to minimize the risks of digital or physical attacks. Finally, create a clear and thorough directive for disclosing and transferring control of bitcoin to beneficiaries that provides instructions on how less-experienced beneficiaries should manage their newly acquired bitcoin investment.

Prudent Investor Rule

Investing bitcoin in a trust requires careful consideration and observation of the prudent investor rule. Trust assets, including any gains and losses, typically impact the beneficiaries. The prudent investor rule requires the managing investor or fiduciary to manage assets as if they were their own, while considering the needs of the beneficiaries and avoiding unnecessary risk. Bitcoin is a volatile asset, and taking a high-risk position would violate the prudent investor rule and potentially cause harm to the beneficiaries

Prioritize Bitcoin Storage and Security

Investing bitcoin in a trust is inconsequential if the bitcoin is vulnerable to digital or physical attacks during your lifetime or during the transfer process. Ensuring proper storage and security of bitcoin, as well as methods for storing and accessing the associated private keys, is necessary to protect your investment and your beneficiaries ability to access the bitcoin. Long-term storage solutions, usually non-custodial or custodial cold storage, are the best method for storing bitcoin over the long term.

Learn more about Bitcoin cold storage solutions.

Create Clear Instructions for Transfer and Access of Bitcoin

As with other assets, it’s necessary to have a clear and well-planned directive for transfer and use of bitcoin after death. Because knowledge of the private keys indicates the owner of the bitcoin, no court process or agency can declare your beneficiary the owner of your bitcoin if the private keys are lost. If you are utilizing an exchange or brokerage account to invest in bitcoin, ensure that your trust has a clear directive on transferring account ownership or control to your beneficiaries.

If your bitcoin is held in a non-custodial wallet, it’s essential to have a clear directive that ensures the beneficiary will be able to access your private keys, which is the main method of identifying ownership of bitcoin. If your private keys are lost, your beneficiaries will not be able to claim or access any bitcoin in the trust. Because control of private keys means control of bitcoin, it’s important to have a clear and secure method of protecting your private keys prior to transferring control, as well as during the transfer process, so only the beneficiaries of the bitcoin assets know the private keys.

Learn more about Bitcoin wallets.

Notice: River Financial does not provide investment, financial, tax, or legal advice. The information provided is general and illustrative in nature and therefore is not intended to provide, and should not be relied on for, tax advice. We encourage you to consult the appropriate tax professional to understand your personal tax circumstances.