Self-custody means only you control your Bitcoin. That's its strength. It's also the problem this chapter solves: if only you know how to access it, then on the day you're gone, nobody can. There's no account manager to call, no "forgot password," no judge who can open a wallet without the key.
Bitcoin without an inheritance plan can be lost forever. The opposite happens too: an heir finds a seed without understanding what it is, tells the wrong person or falls for the first scam.
The goal is to balance two things that pull in opposite directions: security today (nobody steals it while you're alive) and access tomorrow (your family can recover everything and get it legally in order).
No inheritance plan requires handing your seed to anyone today. And no legitimate person will ask your family for the seed later. Not a lawyer, not a notary, not a "recovery company."
Step 1: the instruction letter, without the seed
The core of the plan is a simple document, written by you, in language your family understands. It explains what exists and how to get to it, but does not contain the seed or the passphrase. If the letter leaks, nobody can steal anything with it.
What to put in the letter:
- What you have: "I hold Bitcoin in self-custody." You don't need to state the amount.
- What kind of wallet it is: a single-seed wallet, a seed with a passphrase, or multisig. This changes everything in the recovery.
- Which devices and software: the hardware wallet model and which program to use (examples: Sparrow, Nunchuk, Electrum). Explain that they should download only from the official website.
- Where each piece is: "the seed is in this place," "the passphrase is in another place," without writing down their contents.
- Who the trusted people are: someone who understands Bitcoin and can help, and the family's accountant or lawyer.
- Security warnings: take your time, never type the seed into any website, don't accept help from strangers, be suspicious of anyone offering "recovery."
- Where the tax records are: purchase dates and amounts, which are needed to report the assets and calculate the cost basis.
Keep the letter with your will or other important documents, and tell at least one person it exists. A letter nobody knows about is useless.
A tip that helps a lot: a watch-only wallet
A watch-only wallet is a wallet set up with just the extended public key, the xpub, or with the wallet descriptor. It shows balance and history, but cannot spend. Leaving instructions on how to set up a watch-only wallet helps your family prove the assets during probate without touching anything.
Keep in mind that an xpub can't spend, but it reveals your entire balance and history. Treat it as confidential information, not as a spending secret.
If your wallet uses a passphrase, the xpub or descriptor must be exported with the wallet already opened with the passphrase. If you export from the seed alone, without the passphrase, the watch-only wallet will show a different wallet, an empty one, and your family may think the assets are gone.
Step 2: split the secrets, without overcomplicating
One simple rule protects a lot: seed and passphrase are never in the same place. Someone who finds only the seed can't open the passphrase-protected wallet. Someone who finds only the passphrase has nothing.
A common setup:
- Seed in steel in a secure location (for example, a home safe).
- Passphrase written down somewhere else (for example, kept by a trusted relative or in a bank safe deposit box).
- Instruction letter with your will, saying where each piece is.
Write the passphrase down exactly as it is, with uppercase, lowercase, spaces and accents. A single different character opens another wallet, an empty one, with no error message.
What I don't recommend: cutting the seed in half
Many people think of giving 12 words to one child and 12 to another. It sounds clever, but it weakens your security: whoever holds half the words has far less left to guess, and with a 12-word seed that margin becomes dangerously small. Worse: if one half is lost, the other is worthless.
There are mathematical schemes designed for splitting secrets, such as Shamir (SLIP39), where you set, for example, that any 2 of 3 shares recover everything and a single share reveals nothing. It works, but it's not the same BIP39 standard as 12/24-word seeds and not every wallet supports it. If you use it, make sure your wallet supports it and that your family will find compatible tools in the future. For most people, multisig is the better answer.
Step 3: multisig with a trusted person
As covered in the chapter Multisig: Self-Custody for Larger Holdings, a 2-of-3 wallet has three keys and any two of them can sign a transaction. That fits inheritance very well, because no single key can move the money.
An example setup:
- Key A: with you, at home.
- Key B: with you, in another location (a bank safe deposit box, for example).
- Key C: with a trusted person or a collaborative custody service.
While you're alive, you use A and B and depend on no one. If the person holding key C wants to act alone, they can't. When you're gone, your family brings together key C and one of the others, following the letter, and recovers the funds.
What breaks multisig plans most often is forgetting the wallet descriptor (output descriptor), the file or text containing the xpubs of all the keys and the 2-of-3 rule. Without it, even with two seeds, recovery becomes very hard. Keep a copy of the descriptor with each key and another with the letter. The descriptor can't spend, but it reveals your balance, so store it discreetly.
There are also wallets that use time-based recovery paths (timelocks): an heir's key only becomes valid after a period with no activity. In practice, this means you must move the funds from time to time to reset the clock. It's an elegant solution, but more advanced. Only use it if you understand it well and have tested it.
Step 4: review and test the plan
An inheritance plan isn't something you do once and forget. Review it:
- Once a year, on a fixed date.
- When you change wallets, software or setup type.
- When you move, change safes or change trusted people.
- When your family changes: marriage, separation, a new child.
A good test: ask someone you trust to read the letter and explain, in their own words, what they would do. If they get stuck, the letter needs to be clearer. If your setup involves multisig, do a test recovery yourself with a small amount, following only the letter and the backups.
Step 5: probate, tax reporting and professionals
In Brazil, Bitcoin is property and is part of an estate like any other asset. That means:
- Probate (inventário): the deceased's assets go through probate, either in court or at a notary's office, depending on the case. The Bitcoin needs to be listed.
- Inheritance tax: there is a state tax on transfers by inheritance (ITCMD), with rules that vary by state.
- Tax reporting: Bitcoin must be reported on the income tax return, in the Assets and Rights section, under the crypto-assets group. Afterward, the heirs report what they received.
Other countries have their own rules, but the principle is the same. The plan must let your family access and report. Having the keys without purchase records creates a tax headache. Having the records without the keys means losing the assets. The watch-only wallet and the purchase records cover the proof. The keys and the letter cover the access.
I don't give specific legal or tax advice. Rules change and every family is different. Take your plan to an accountant and an estate lawyer, explain that the Bitcoin is in self-custody, and confirm how it should be reported and handled in probate. You don't need to show them the seed. They need to know the asset exists and how it will be proven.
Checklist
- I wrote an instruction letter with no seed and no passphrase.
- The letter states the wallet type, the software and where each piece is.
- My seed and passphrase are stored in different places.
- If I use multisig, the descriptor is stored with the keys and the letter.
- At least one trusted person knows the letter exists and where it is.
- My Bitcoin is reported and my purchase records are organized.
- I scheduled a yearly review and talked to an accountant and a lawyer.