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Crypto Law/Level IX · Death, divorce and disputes/9.1 Inheritance/Lesson 6

Multisig and dead-man switches

How multi-key wallets and timelock or inactivity triggers can pass crypto at death, and where those designs meet will formalities, ownership, creditors and fiduciaries.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Back any code-based transfer with a cheap written instrument: A.R.S. §14-6101 treats death provisions in trusts, account agreements and similar written instruments as nontestamentary, avoiding an invalid-will challenge; creditors can still reach the coins under §14-6101(C).
  2. Use an open standard rather than a paid service where possible: Bitcoin timelocks (BIP 65, BIP 112) and SLIP-0039 shares cost only network fees; test with small amounts during life, because a false trigger can move coins early.
  3. Remember the tax position is unchanged by the design: coins the holder owns at death are in the gross estate under 26 U.S.C. §2033 and receive the §1014 basis step-up; reporting duties fall on the executor.
  4. A collaborative-custody provider is worth its fee only if its death-verification and release terms match the estate plan; its contract, not the will, decides what it signs.
  5. Record in a signed document which role each keyholder holds, trustee, agent or co-owner, so a co-signer who moves coins without authority faces clear civil claims.

MaterialsBitcoin Improvement Proposals 65 (OP_CHECKLOCKTIMEVERIFY) and 112 (OP_CHECKSEQUENCEVERIFY)SLIP-0039, Shamir’s Secret-Sharing for Mnemonic CodesArizona Revised Statutes §14-6101, the Uniform Probate Code rule on nonprobate transfers at death26 U.S.C. §2033, on property included in the gross estate

Wonder

  1. If code sends coins to a child after a year of inactivity, is that a will?
  2. In a 2-of-3 multisig wallet, who legally owns the coins?
  3. What happens if a dead-man switch fires while the holder is still alive?

Explore

  1. A multisignature (multisig) wallet requires a set number of keys out of a larger group, for example 2 of 3, to sign a transaction. For inheritance it removes a single point of failure: if one keyholder dies, the remaining keys can still move funds, and one stolen key is not enough to steal them. Shamir secret sharing is a different tool: SLIP-0039, a published standard, splits one wallet’s master secret into shares so that a set minimum is needed to rebuild it, while fewer shares reveal nothing. Both spread control across people or places; neither, by itself, says who is legally entitled to the coins.
  2. A dead-man switch moves coins or releases information if the holder stops checking in. On Bitcoin, script features standardised in BIP 65 (OP_CHECKLOCKTIMEVERIFY) and BIP 112 (OP_CHECKSEQUENCEVERIFY), with BIP 68’s relative lock-time, let a wallet allow a second key to spend only after a set date or after a set time has passed since the coins last moved. The holder resets the clock by moving the coins. Off-chain services instead send stored messages after missed check-ins. Either way, the trigger measures inactivity, not death: it cannot tell a death from a long hospital stay, a lost device or a prison sentence.
  3. Can code act as a will? A will must meet formalities; Arizona’s A.R.S. §14-2502 requires writing, the testator’s signature and two witnesses (lesson 9.1.2). Transfers at death outside a will are allowed for listed arrangements: under A.R.S. §14-6101, based on Uniform Probate Code §6-101, a death-time provision in an account agreement, custodial agreement, trust, deed of gift ‘or other written instrument of a similar nature’ is nontestamentary. Whether a timelocked script, with no written instrument behind it, fits that list is not settled by the statute’s words. A disposition that sits only in code is therefore exposed to the argument that it is an invalid attempted will.
  4. Technical control is not legal ownership. In a 2-of-3 setup where the holder keeps two keys and a child keeps the third, the coins remain the holder’s property during life, and under 26 U.S.C. §2033 their value is in the holder’s gross estate at death. A keyholder who moves coins without authority may face civil claims such as conversion or breach of trust, and possibly criminal charges, depending on the facts and the state. Section 14-6101(C) also says the nonprobate rule does not limit creditors’ rights under other law, so coins that pass outside the will can still be reached for the estate’s debts.
  5. Switches and multisig also have to fit with the people who hold legal authority. An executor has authority over the estate’s assets (lesson 9.1.4); if a switch sends coins to someone other than the will’s beneficiaries, the executor may have to account for them, and beneficiaries may dispute the result. A collaborative-custody provider that holds one key acts under its contract, so its own death-verification and release terms decide what it will sign. For trusts, the Trust Law track covers multisig inheritance designs. The legal question in every design is which role each keyholder holds: trustee, agent, co-owner or none.
  6. A practical check is to test the design during life with small amounts: confirm the backup keys sign, the timelock releases when expected, and the written instructions (lesson 9.1.7) let a non-technical heir follow them. Then walk through the failure cases: a keyholder who dies first, loses a key, divorces or becomes hostile. Note which signed document describes the intended outcome, so the code and the paper say the same thing. Finally, ask whether a false trigger, such as a long illness or a lost device, could move coins early, which could start a dispute over whether a gift was made (lesson 7.1.3).

Key facts

  • A multisignature wallet requires a set number of keys out of a larger group, such as 2 of 3, to authorise a transaction.
  • BIP 65 defines OP_CHECKLOCKTIMEVERIFY and BIP 112 defines OP_CHECKSEQUENCEVERIFY, Bitcoin script features used for time-locked spending.
  • SLIP-0039 specifies Shamir’s secret-sharing for splitting a wallet’s master secret into shares, a minimum number of which are needed to rebuild it.
  • Under A.R.S. §14-6101, death-time provisions in listed written instruments such as account agreements, custodial agreements and trusts are nontestamentary.
  • A.R.S. §14-6101(C) provides that the nonprobate transfer rule does not limit creditors’ rights under other state law.
  • Under 26 U.S.C. §2033, the gross estate includes the value of all property to the extent of the decedent’s interest at death.

Exercise nine, six, three, one

9CollectList up to 9 ways crypto could pass to someone else when its holder dies or disappears (some lists are shorter), such as a will, a trust, a multisig co-signer, a timelocked script, an inactivity service or an exchange’s estate process.
6ClusterSort them into 6 categories: court-supervised transfers, trust-based transfers, contract-based transfers through a provider, multisig arrangements, purely code-based triggers, and informal arrangements with family.
3DistillReduce the 6 categories to 3 groups: backed by a signed legal document, backed only by technology, and backed by neither.
1CrystallizeWrite 1 sentence explaining, in your own words, why holding a key to a wallet is not the same as owning the coins in it.

Fact check

Dates, figures and claims checked against the published sources listed below.

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