Can You Put Cryptocurrency in a Trust?

Yes, you can put cryptocurrency in a trust. Placing these assets into a trust ensures they are handled according to your specific instructions, both during your lifetime and after. The process requires careful planning, specific legal language, and a clear understanding of a trustee’s responsibilities to provide for your beneficiaries and secure your digital legacy.

Key Decisions and Information Gathering

Before a trust can be created, a detailed inventory of all cryptocurrency holdings is necessary. This requires documenting the nature of each asset, such as Bitcoin or NFTs, and how it is held. You must distinguish between accounts on centralized exchanges and assets in self-custody wallets, which can be software-based (hot wallets) or hardware-based (cold wallets). This inventory serves as the foundational record for your attorney and future trustee.

A primary decision is the type of trust to establish. A revocable trust allows you to retain control and make changes to the trust terms, or even dissolve it, during your lifetime. An irrevocable trust, once created, cannot be easily altered, and the assets transferred are removed from your direct control and your taxable estate. The choice between these structures depends on your goals for asset control, tax planning, and creditor protection.

Selecting the right fiduciary to manage these assets is another consideration. You can appoint an individual, such as a family member, or a corporate trustee, like a bank or trust company. An individual may offer a personal touch but might lack the technical expertise to manage digital assets securely. A corporate trustee may have more robust security protocols and experience, but you must confirm they have policies for handling cryptocurrency, as some institutions are still hesitant to take on such roles.

Drafting the Trust for Digital Assets

When creating a trust to hold cryptocurrency, the legal document must contain language that explicitly authorizes the management of digital assets, as general provisions are insufficient. The trust instrument should define “digital assets” to encompass a wide range of technologies, including cryptocurrencies, tokens, and NFTs. This ensures the trustee’s authority is not ambiguous.

The document must grant the trustee specific powers beyond simple possession. These should include the authority to access digital wallets, manage private keys, and interact with cryptocurrency exchanges. The trust can permit the trustee to execute trades, transfer assets between wallets, and engage in activities like staking or providing liquidity, if you wish to allow for such actions. Explicitly granting these powers helps protect the trustee from liability and allows them to actively manage the portfolio as market conditions change.

Instructions for the valuation of cryptocurrency holdings are also needed. Because cryptocurrency markets operate 24/7, the trust should specify a consistent methodology for valuation, such as using a particular exchange’s price at a specific time of day. This clarity is for accounting, tax reporting, and preventing disputes among beneficiaries.

The trust should also address unique events like hard forks or airdrops. The document should instruct the trustee on whether to claim, hold, or sell these new assets. By anticipating these scenarios, the trust provides a clear roadmap for the trustee.

The Process of Funding the Trust

Once the trust document is signed, the next step is to fund it by transferring ownership of your cryptocurrency. The process differs depending on whether the assets are on a centralized exchange or in a self-custody wallet.

For cryptocurrency held on an exchange, the process involves retitling the account from your name to the name of the trust. This requires contacting the exchange’s customer support and submitting a copy of the trust document and a certificate of trust. The exchange will guide you through their procedures, which involves completing new account paperwork in the trust’s name.

Transferring assets from a self-custody wallet into a trust does not involve a third party. Since these assets are controlled by private keys, the transfer is a legal designation. You associate the wallet with the trust by creating a formal assignment document that lists the specific wallets and the assets they contain, declaring them to be property of the trust.

Ensuring the trustee can access self-custodied assets is the most sensitive part of this process. You should never write private keys or seed phrases into the trust document itself. Instead, this information, along with usernames and passwords, should be stored securely and provided to the trustee through a separate, confidential letter of instruction.

Trustee Duties and Tax Implications

After the trust is funded, the trustee assumes fiduciary duties for managing the cryptocurrency. A primary responsibility is to secure the assets. This involves implementing robust custody solutions, such as moving assets to more secure cold storage wallets, and safeguarding the private keys and seed phrases from theft or loss.

The trustee also has a duty to account for the assets. This requires meticulous record-keeping of all transactions. The trustee must track the cost basis of each asset, which is the original value when placed in the trust, to accurately calculate capital gains or losses. Regular valuations are also necessary for reporting to beneficiaries and for tax filings.

From a tax perspective, when the trustee sells cryptocurrency for a profit, the gain is considered taxable income to the trust. The trust must file an income tax return to report this income. Tax rates for trusts can be higher and apply at lower income thresholds than for individuals, making tax planning a part of the trustee’s role.

Funding the trust can also have tax consequences for the grantor. Transferring cryptocurrency to a revocable trust has no immediate gift tax implications. However, transferring assets to an irrevocable trust is a completed gift. If the value of the transferred crypto exceeds the annual gift tax exclusion amount, you may need to file a gift tax return and use part of your lifetime gift and estate tax exemption.