Succession and fund transfer
In the journey of managing a family’s bitcoin inheritance, the most crucial phase is when the time comes for the heirs to access and transfer their inheritance. This page walks through the process of how Christina and David, following the loss of their parents, use their inheritance keys to claim and move their bitcoin inheritance.
This page will cover:
- How Christina and David access the wallet using their inheritance keys
- The process of importing the wallet configuration into the app as well as their signing devices
- Creating and signing the transactions that distribute the inherited funds
Retrieving the wallet backup
The first step for Christina and David is to access to the wallet configuration, which involves the following steps:
- Log into the shared family vault in their password manager
- Retrieve the PIN to the home safe in their parents’ house
- Use the PIN to open the safe
- Find and open the tamper-evident bag that contains the recovery PDF and the remaining backup material
We have covered the complete setup on the wallet backup page.
Importing the wallet configuration
With the recovery materials in hand, Christina and David proceed to import the wallet configuration into their respective devices.
Christina and David open the bag and take out the recovery PDF. On the first page they see the QR code with the wallet configuration. Both of them open our app on their phones and import the wallet by scanning the QR code.
Christina taps the plus button to start adding the wallet.
Christina selects “Import wallet”
She chooses to scan the QR code from the recovery PDF.
Christina scans the QR code.
She reviews the wallet configuration and finishes the import.
Christina skips the download of the backup kit, as she already has it.
The home screen reminds Christina that she should enable her signing device.
After importing the wallet, Christina and David can view the wallet balance and transaction history.
Activating the wallet on the signing devices
Next, they need to import the wallet to their respective signing devices. To do this, they follow the same process as Alice did during cosigner onboarding.
Timelock constraints
After activating the wallet on their signing devices, Christina and David have successfully gained access to their inheritance. However, they cannot immediately spend the funds using their inheritance keys due to the timelock constraints set up by their parents.
As we have covered on the use case page, the lock period for the inheritance key set is set to 12 months (6 months for the recovery path + 6 months for the inheritance key set). Since Alice and Bob’s last transaction was 5 months ago, Christina and David will have to wait an additional 7 months before they can use their inheritance keys.
Faster access with primary keys
If Christina and David had access to their parents’ signing devices, they could potentially use the recovery path after 6 months. However, they don’t have this access, so they must wait for the full 12-month period.
Distributing the inheritance
After the 12-month waiting period, the inheritance key set becomes active. Christina and David meet to create the transactions that will distribute their inheritance.
Christina goes on to create the first transaction, which will send half of the funds to her own wallet.
Christina goes into the inheritance wallet to create a transaction.
On the wallet details page, she hits “pay”.
Christina starts to create a new transaction.
She pastes the address of her personal bitcoin wallet.
Christina wants to send 50% of the wallet balance.
Christina goes with the default transaction speed.
Christina reviews the details and then creates the transaction.
Christina goes on to sign the transaction.
The transaction has been created and is ready to be signed. Christina goes ahead and signs it with her hardware signing device.
Christina checks the details again and scrolls down to find her signing device.
Christina scrolls down to her inheritance key and hits “sign”.
The app takes her through the signing flow.
The first signature has been provided.
Christina shares the partially signed transaction with David.
After Christina is done, she shares the partially signed transaction with David by generating a QR code. David imports the transaction by scanning the code. After reviewing the details he adds his signature and the app broadcasts the fully signed transaction to the bitcoin network.
David initiates the transaction signing process.
He chooses the scan QR code option.
David scans the QR code from Christina’s phone.
David reviews the transaction and signs it.
The app takes him through the signing flow.
With David’s signature the required threshold has been reached and the transaction is finalized.
The home page shows the pending transaction.
While waiting for the first transaction to be confirmed, Christina and David repeat the process to create and sign a second transaction, sending the remaining 50% of the funds to David’s personal wallet.
What if they don't trust each other?
In a more adversarial environment, David may not be OK with signing the transaction for Christina without any guarantee that she will also sign his transaction. In that case, Christina can create a batch transaction, or two separate transactions. That way she is committed to both transactions before David signs anything.
With both transactions confirmed on the blockchain, the inheritance is now fully distributed. Christina and David each control their respective share of the funds in their personal wallets, completing the inheritance process as their parents had intended. This marks the successful transfer of assets and the fulfillment of Bob and Alice’s inheritance plan.
Conclusion
The inheritance wallet design explored in this reference implementation leverages multi-key wallets and relative timelocks to create a flexible and secure inheritance solution. While this approach offers several advantages, it also comes with some potential drawbacks. Let’s examine the pros and cons:
Pros
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Flexibility: The combination of multi-key and timelocks allows for a highly customizable setup that can accommodate various family situations and inheritance scenarios
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Security: Multi-key provides enhanced security by requiring multiple keys to authorize transactions, reducing the risk of theft or unauthorized access
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Privacy: The inheritance keys can be distributed to heirs without giving them immediate access to the funds or transaction history, maintaining financial privacy for the original owners
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Recoverability: The timelocked recovery path provides a way for owners to regain access to their funds if they lose some of their keys, without compromising security under normal circumstances
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Gradual transition: The setup allows for a gradual transition of control from the original owners to the heirs, which can be beneficial for estate planning and teaching financial responsibility
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Legal integration: The design allows for the involvement of legal professionals (like Edward in the example), providing a bridge between bitcoin inheritance and traditional legal processes
Cons
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Complexity: The multi-key and timelock setup is more complex than a simple single-signature wallet, which may be challenging for less technically inclined users to understand and manage
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Maintenance: Regular key checks and potential updates to the wallet configuration require ongoing attention and effort from the wallet owners
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Backup challenges: With multiple keys and a wallet descriptor to back up, there are more components to secure and potentially lose compared to a single-key wallet
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Coordination required: In scenarios where multiple signatures are needed, coordinating between different signers can be logistically challenging, especially in time-sensitive situations
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Potential for errors: The complexity of the setup increases the risk of user errors, such as misconfiguring timelocks or mismanaging keys, which could lead to loss of funds
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Limited support: Not all wallet software supports complex multi-key and timelock configurations, potentially limiting users’ options for managing their funds
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Inheritance key holder privacy considerations: While inheritance key holders can mitigate privacy risks by generating new XPUBs or using dedicated devices for the inheritance wallet, this adds another layer of complexity and potential cost
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Time delay for full inheritance access: While heirs with access to a primary key could potentially use the recovery path for quicker access, full control via inheritance keys is still subject to the timelock delay
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Ongoing transaction costs: Timelocks need to be refreshed at regular intervals, incurring transaction fees. This ongoing cost needs to be factored into the long-term management of the wallet
In conclusion, while multi-key and timelocks offer powerful tools for creating secure and flexible inheritance solutions, they also require careful planning, ongoing management, and a good understanding of the technology. Families considering such a setup should weigh these pros and cons against their specific needs, technical capabilities, and risk tolerance. The added security and flexibility come with increased complexity and maintenance requirements, including regular updates and associated transaction costs.
Final thoughts
A unique point about bitcoin inheritance is that it cannot be overruled by the law. With traditional methods, the descendants could get a court order to get to the funds. But that’s simply not possible with bitcoin.
Compared to traditional inheritance setups, the bitcoin setup is technically more complex but operationally simpler in many ways. It eliminates many intermediaries and provides more direct control, but requires:
- Technical competence from all parties
- Careful key management
- Regular maintenance (checking keys, updating configurations)
- Family coordination and education