3 Multisig Wallets in Inheritance and Partnership Law

Technical framework: How does a 2/3 multisig work?

A multisig wallet is a system that, rather than requiring a single private key to authorise a transfer, ensures that a specified threshold number of private keys are used. In the 2/3 multisig model, there are three separate signature keys; for a transaction to be executed, valid signatures from at least two of these are required. The keys can be held by different people, on different devices or in different countries.

In Bitcoin, this structure can be set up using P2SH-type scripts in particular. The spending condition is defined as a script on the blockchain, and two valid signatures must be provided. Here, the legal or organisational ownership of the wallet does not automatically follow from the technical structure of the address.

In Ethereum, however, multisig is predominantly smart contract-based. Assets are held at an address controlled by the contract; the transaction is executed via the contract once it has been approved by a specified number of signatories. In this model, the replacement of signatories, revocation of authorisation, transaction order and administrative actions are governed by the contract’s code.

The critical distinction is the same in both models: possessing a private key grants technical transaction authority; however, this authority alone does not imply ownership, inheritance, a share in a partnership or the right of representation. Similarly, the fact that a person is legally an heir or a company representative does not automatically render the relevant private key usable on the blockchain.

Inheritance scenario

If one of the signatories dies, can the remaining two signatories access the asset?

In a 2/3 structure, if one of the three signatories dies, the deceased person’s key may technically remain usable; however, whether the key has been passed on to the heirs, where the key is located, and whether the security credentials are known are separate matters.

If the deceased’s key has been completely lost, the remaining two signatories can technically provide the two valid signatures. In this case, within Bitcoin’s P2SH structure, a transaction can be executed provided the two signatures required by the script are present. In the smart contract-based structure of Ethereum, a transfer can also be carried out if the contract is designed to accept two valid signatures.

However, this technical possibility does not imply that the remaining two individuals hold exclusive rights to the asset. If the deceased signatory held any economic rights or a share in the wallet, this value must be assessed as part of the estate’s assets. The fact that the remaining two signatories transfer the asset to another address on their own does not negate the rights of the heirs or other rightful claimants.

A more complex situation arises when the deceased’s private key is actually passed on to the heirs. The heirs may use the private key to sign transactions; however, the transfer of the private key does not automatically establish that the assets in the multisig wallet belong to a specific heir. The key represents technical authority. The determination of the share in the estate and the economic right to the assets in the wallet, however, is governed by inheritance law.

Is the private key of the deceased signatory included in the estate?

According to the provisions of the Turkish Civil Code regarding the transfer of inheritance, heirs acquire the deceased’s property rights upon death. The current legislation explicitly states this as follows:

TURKISH CIVIL CODE – ACQUISITION OF AN INHERITANCE

Heirs acquire the estate as a whole upon the death of the testator, in accordance with the law.

Subject to the exceptions provided for by law, heirs directly acquire the deceased’s rights in rem, claims, other property rights, and possession of movable and immovable property, and are personally liable for the deceased’s debts.

Whether a private key constitutes a direct ‘property right’ or is confidential information that provides de facto and technical control over a crypto-asset must be assessed on a case-by-case basis. This distinction is important. A private key, on its own, is not a title deed to a specific amount of crypto-asset. The key enables the exercise of the authority to transfer funds from the relevant address.

Conversely, if it can be proven that the private key is held for the management of a wallet belonging to the deceased and that the assets in that wallet are economically owned by the deceased, the key or access details to the key becomes a digital element that must be taken into account for the purposes of safeguarding the estate.

Heirs may ‘inherit’ the key; however, this term has two distinct meanings:

The physical or electronic handover of the key to them,
The economic authority conferred by the key becoming available for use in proportion to their shares of the inheritance.

The first meaning refers to technical handover. The second meaning relates to the joint ownership of the estate, the administration of the estate and the rules governing its distribution.

Can two signatories make decisions independently within the joint ownership of the estate?

If there are multiple heirs, the transfer of the inheritance gives rise to a partnership amongst the heirs encompassing all the rights and obligations of the estate. Until the estate is divided, the heirs hold the estate jointly and, as a rule, exercise their rights over the estate collectively.

TURKISH CIVIL CODE – COMMUNITY OF HEIRS

Where there are multiple heirs, upon the transfer of the inheritance and until the estate is divided, a partnership is formed amongst the heirs covering all the rights and obligations of the estate.

The heirs hold the estate jointly and, subject to any authority of representation or management arising from contract or law, exercise joint control over all rights pertaining to the estate.

At the request of one of the heirs, the magistrates’ court may appoint a representative for the community of heirs until the estate is divided.

It should be particularly emphasised that this provision is not the same as the two-thirds technical threshold. Whilst the blockchain protocol may regard two signatures as sufficient, inheritance law may not require two individuals to act alone in respect of the estate. For example, if only two of three heirs transfer assets to another address, including the share of the deceased signatory, the transaction may be finalised on the blockchain; however, the rights of the other heir arising from the joint estate do not cease.

In this situation, claims for the return of assets, their inclusion in the distribution account, equalisation or compensation may arise. Concealing the transfer, transferring the asset to a personal wallet or retaining transaction records may also give rise to issues of proof and liability.

Does a certificate of inheritance or a succession certificate transfer the right to sign?

Technical answer: No. A certificate of inheritance or court order does not alter the Bitcoin script, add a new signatory to an Ethereum multisig contract, or regenerate a lost private key. The blockchain network does not automatically recognise a court order.

Legal answer: A certificate of inheritance may establish the status of heir and identify the heirs. However, in order for the technical authority to be exercised, the key must be handed over, wallet management must be changed, or, where applicable, the administrative procedures stipulated by the smart contract must be carried out.

Consequently, the court order does not directly ‘transfer’ the right to sign on the blockchain. However, it may provide a legal basis for determining that the key belongs to the estate, the handover of the key, the accountability of the remaining signatories, or decisions regarding the protection of the asset.

Provisions to be included in a will and partnership agreement regarding inheritance

The following matters must be explicitly regulated in a will or a separate inheritance plan:

The existence of the multisig wallet and the blockchains on which it is located,
To whom the assets in the wallet belong,
Which individual or organisation holds each signature key,
How the key is to be safeguarded in the event of a signatory’s death,
Whether the key is to be handed over to the heirs directly or via a trusted representative,
Whether the remaining signatories can carry out a transfer on their own,
If a transfer is to be made, the approval procedure by which the new address will be determined,
How the valuation date of the assets will be determined,
The method of joint management in the event of a minor heir or multiple heirs,
The key must not be written in plain text in the will and must be stored using a split or encrypted method.

However, it should not be forgotten that an instruction written in a will will not alter the rules of a technically operational wallet. The legal instruction and the feasibility of the blockchain transaction must be kept separate.

Joint ownership scenario

What happens to the key if a partner leaves or is expelled from a three-partner company?

The use of a 2/3 multisig wallet in a three-partner company, assuming the wallet belongs to the company’s assets, requires the establishment of a relationship of authority between the signatories and the company. When a partner leaves the company, transfers their share or is expelled from the partnership, two possibilities must be distinguished:

The departing individual may have merely lost their status as a partner, whilst the signature key remains a tool held on behalf of the company.
Alternatively, the key may be held in a manner specific to the individual and independent of the company; in this case, the transfer to a new signatory on behalf of the company requires a technical procedure.

Even if it is claimed that the key is held in personal ownership, it cannot be accepted that the internal authority granting access to the company’s assets continues with the departing partner. The articles of association, a resolution of the board of directors or the partners’ meeting, the job description, the custody protocol and transaction records demonstrating that the key is held on behalf of the company must be assessed.

In Bitcoin structures where the key cannot be updated, it may be necessary to create a new wallet and transfer the assets to a new 2/3 address. If the Ethereum smart contract permits a key change, a new signatory may be added via the contract’s governance function, or the departing party’s authorisation may be revoked. However, the current signature threshold must be met for this process.

The company’s articles of association must be compatible with multisig authorisation

The provisions of the Turkish Commercial Code (TTK) relating to corporate groups regulate inter-company control, majority voting and the decision-making power of the governing body. Within this framework, the company’s actual digital asset management should not be left solely to the personal agreement of the shareholders.

TURKISH COMMERCIAL CODE – GROUPS OF COMPANIES AND CONTROL

A commercial company is deemed to be a controlling company if it holds, directly or indirectly, a majority of the voting rights in another commercial company, or if, in accordance with the articles of association, it has the right to ensure the election of a number of members sufficient to constitute a majority capable of making decisions within the management body.

If a commercial company is able to exercise control over another commercial company, whether by virtue of a contract or by other means, the provisions relating to groups of companies shall apply.

The articles of association and the internal regulations must include the following elements:

Which wallets hold the company’s assets,
Which transactions require multisig approval,
Whether the signatories are partners, directors or employees,
That the key is held in the company’s name rather than personally,
The procedure for handing over the key in the event of withdrawal from the partnership, expulsion, death, dismissal or resignation,
The method for appointing a new signatory,
Provisions prohibiting a signatory from holding the company’s assets in their sole name,
The contractual penalty and calculation of damages to be applied if the key is not handed over,
The decision-making and recording procedure for transferring assets to a new wallet in emergency situations.

In limited companies, the fact that management and representation can be regulated by the articles of association and that the power of representation can be granted to shareholders or third parties requires the multisig arrangement to be explicitly linked to the representation system. In public limited companies, however, the powers of representation and signature must be consistent with the decisions of the governing body.

Is the handover of the key mandatory upon a partner’s withdrawal?

If the departing partner holds the key on behalf of the company and for the purpose of carrying out transactions involving the company’s assets, the handover of the key or the secure access element to the company may arise from the articles of association, the employment relationship, the representation arrangements or the duty to protect the company’s assets.

However, the handover of the key must not be interpreted as the sending of the seed phrase in plain text via email or message. A secure method of handover may involve creating a new wallet, transferring the assets to a new multisig wallet, placing the key in an authorised custody arrangement, or changing the signatory in the existing smart contract.

In the event of a failure to fulfil the obligation to hand over the key, the company may, as a first step, issue a formal notice and demand contractual performance. Depending on the specific circumstances, claims for damages, the return of economic benefits obtained unlawfully, interim measures to protect the company’s assets, and liability arising from the misuse of management powers may arise.

If the technical transaction cannot be reversed, the calculation of damages must take into account not only the value of the crypto-assets at the time of transfer, but also the nature of the transaction, the company’s rights over the assets, and the actual loss suffered as a result of the transfer.

Scenario proposals and breaking points

A more robust framework for inheritance

Rather than relying on a single individual’s key for inheritance purposes, a system can be established where three keys are held at different security levels. For example, two keys could be held by trusted individuals, whilst the third key could be stored with a notary or in an encrypted escrow arrangement.

However, a weakness of this model is that notarial custody does not provide technical verification or a guarantee of the wallet’s functionality. Furthermore, the risk of the key being disclosed when the will is opened persists.

Another option is a pre-prepared transaction plan that provides for the transfer of assets to a new inheritance wallet in the event of death. The weakness of this approach, however, is that death cannot be automatically detected by the blockchain, and the transaction plan does not supersede the distribution rules under inheritance law.

A more robust structure for the company

The company should link signatories not to the partners’ personal capacities, but to their roles or corporate functions. For example, two signatures could be held by company directors, whilst the third signature could be held by an independent corporate custodian. In this way, the departure of a partner would not directly render the wallet inoperable.

The weakness of this approach lies in the potential for misuse by the independent custodian or operational delays. Furthermore, as the number of signatories increases, the decision-making process may slow down.

The articles of association, internal guidelines, decision on signing authority and key custody protocol must be consistent with one another. It is not sufficient for the articles of association to simply state ‘representation by two signatures’. This provision must specify which signatures are required for which transactions involving which digital wallet.

A 2/3 multisig structure can ensure technical continuity in the event of a signatory’s death or withdrawal from the partnership; however, this does not automatically resolve issues of legal ownership, inheritance rights or corporate representation authority. The fact that the remaining two signatories can carry out transactions does not negate the economic rights of the deceased person or the departing partner.

A certificate of inheritance does not automatically transfer multisig signing rights on the blockchain. Nor should a partner who has left the company continuing to hold their key result in technical access being maintained as corporate authority. In both scenarios, there must be clear alignment between the technical rules of the wallet and the will, joint inheritance agreement, company articles of association and representation resolutions.

The most secure framework is a written management and custody protocol that links signatories to roles rather than individuals; pre-emptively regulates the transition to a new wallet in the event of death, resignation, removal, loss of keys or unauthorised transfers; and further ties every transaction to a decision by the company or the inheritance partnership. However, it must be acknowledged that this protocol alone does not completely eliminate the risk of technical key loss or irreversible transactions on the blockchain.