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Crypto Law/Level IX · Death, divorce and disputes/9.1 Inheritance/Lesson 3

Crypto in a trust

What changes when a trust rather than a person holds crypto: getting the coins into the trust, who controls the keys, and how trustee duties apply to a volatile asset that moves by signature.

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. Fund a revocable trust without paying for retitling: in California, Estate of Heggstad (1993) lets a signed written declaration that the settlor holds listed property as trustee put it in trust; other states’ rules differ, so confirm locally.
  2. A revocable trust costs no extra income tax: under 26 U.S.C. §676 the grantor is taxed as owner, and under Treas. Reg. §1.671-4(b)(2)(i)(A) a trustee giving payors the grantor’s TIN files no separate return; the grantor still reports every trade.
  3. Revocable trust assets stay in the gross estate under 26 U.S.C. §2038, so heirs keep the basis step-up at death; Rev. Rul. 2023-2 denies the step-up for irrevocable trust assets kept out of the estate.
  4. Avoid a breach-of-duty claim for holding one volatile token by writing the permission into the trust: California Probate Code §16046(b) lets the settlor expand or restrict the prudent investor rule; the trustee must still act in good faith.
  5. Hire a bank or directed-trust custodian only when holdings justify the fees; otherwise name a successor trustee who can actually sign, because the trust document gives legal authority but no keys.

MaterialsCalifornia Probate Code §§16046-16048, the prudent investor rule and the duty to diversifyEstate of Heggstad (1993) 16 Cal.App.4th 943, on funding a trust by written declarationOCC Interpretive Letters 1170 (2020) and 1183 (2025) on bank crypto custodyThe Trust Law track level ‘Trusts on chain’, for general trust mechanics

Wonder

  1. If a trust document lists a person’s bitcoin, does the trust actually own it?
  2. Can a trustee be blamed for holding one coin that then crashed?
  3. Who holds the keys once a trust owns the coins?

Explore

  1. A trust separates legal ownership, held by a trustee, from the benefit, which goes to beneficiaries. The general mechanics, including revocable living trusts and how they avoid probate, are covered in the Trust Law track. The crypto question is narrower: how does a coin get into a trust, and who controls it once there? Shares and bank accounts are retitled in the trustee’s name by the institution that keeps the register. A self-custodied coin has no title register; the network only knows which key can sign. So a trust holds self-custodied crypto through documents on one side and a trustee’s actual control of the keys on the other.
  2. Funding an exchange account usually means opening it in the trust’s name, which depends on what the platform allows. Coinbase says it does not support naming a beneficiary on individual accounts, so an account left in an individual’s name passes under the will or intestacy rules (lesson 9.1.1). For self-custody, the usual evidence is a written assignment or a schedule in the trust document identifying the holdings. In Estate of Heggstad (1993) 16 Cal.App.4th 943, a California appeals court held that a settlor’s written declaration that he held listed property as trustee was enough to put it in trust without a separate conveyance. Other states’ rules differ.
  3. A trustee holds trust property for the beneficiaries, so trust law expects the trustee, not the settlor’s friend or a relative, to be able to control it. Where the settlor is also the first trustee of a revocable trust, the settlor usually keeps the keys. The hard moment is incapacity or death, when a successor trustee must take control (lesson 9.1.4). If only the settlor knew the recovery phrase, the trust document gives the successor legal authority but no technical means. Some trusts split roles: directed-trust statutes, including those based on the Uniform Directed Trust Act, let a separate trust director hold powers over particular assets.
  4. Trustees in most US states are bound by a prudent investor rule. California’s version, Probate Code §16047, requires a trustee to invest and manage trust assets as a prudent investor would, judging each decision in the context of the whole portfolio, and §16048 imposes a duty to diversify unless it is prudent not to. Under §16046(b), the settlor may expand or restrict the rule by express provisions in the trust instrument, and a trustee is not liable for good-faith reliance on them. For a trust funded mostly with one volatile token, such a clause can decide whether a trustee who held through a crash faces a claim from beneficiaries.
  5. Trustees often look to regulated custodians. In July 2020 the Office of the Comptroller of the Currency said in Interpretive Letter 1170 that national banks may provide crypto custody, including holding cryptographic keys; in March 2025, Interpretive Letter 1183 confirmed that crypto-asset custody is permissible and dropped a prior requirement for supervisory non-objection. Wyoming’s 2019 law, SF0125, classified digital assets as property and created an opt-in framework for banks offering digital asset custody. In England and Wales, the Property (Digital Assets etc) Act 2025, given Royal Assent on 2 December 2025, confirms that a digital thing can be an object of personal property rights.
  6. For US income tax, a trust the settlor can revoke is generally a grantor trust: under 26 U.S.C. §676 the grantor is treated as owner of any portion whose title the grantor or a non-adverse party can revest in the grantor, so the trust’s crypto trades appear on the grantor’s own return. Irrevocable trusts differ, and Revenue Ruling 2023-2 (lesson 7.1.5) denies a basis step-up for assets kept out of the gross estate. A practical check for any crypto trust: for each holding, find the document that puts it in the trust, name who can sign transactions today, and name who could sign tomorrow if that person died.

Key facts

  • In Estate of Heggstad (1993) 16 Cal.App.4th 943, a California appeals court held that a written declaration of trust can place property in trust without a separate conveyance to the trustee.
  • California Probate Code §16048 imposes a duty on trustees to diversify trust investments unless it is prudent not to.
  • Under California Probate Code §16046(b), a settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument.
  • OCC Interpretive Letter 1170, published in July 2020, concluded that national banks may provide cryptocurrency custody services, including holding cryptographic keys.
  • Wyoming’s 2019 SF0125 classified digital assets as property and created an opt-in framework for banks to provide digital asset custody.
  • Under 26 U.S.C. §676, a grantor is treated as owner of any trust portion whose title the grantor or a non-adverse party can revest in the grantor.

Exercise nine, six, three, one

9CollectList up to 9 crypto holdings that are, or might one day be, placed in a trust (some lists are shorter), noting for each whether it is on an exchange, in a hardware wallet, in a phone app or in a multisig setup.
6ClusterSort them into 6 categories: accounts already titled to a trust, accounts in an individual’s name, self-custody holdings listed in a trust document, self-custody holdings not listed anywhere, holdings with a named successor who can sign, and holdings whose status you are unsure about.
3DistillReduce the 6 categories to 3 groups: legally and technically in the trust, legally in the trust but not technically reachable by a successor, and outside the trust.
1CrystallizeWrite 1 sentence explaining, in your own words, why a trust over self-custodied crypto needs both a document and a person who can actually sign.

Fact check

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

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