Trust Law/Level IX · Trusts on chain/9.1 Digital assets in trust/Lesson 1
Can a trust hold bitcoin?
Yes, in principle; the hard questions are about keys, powers and duties
Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.
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.
- Usually no new trust is needed: an existing revocable living trust can hold bitcoin once the coins are assigned to it in writing, and a self-trusteed one files no separate return (Treas. Reg. §1.671-4(b)(2)). Catch: it saves no tax and shields nothing from creditors.
- Add one clause expressly authorising digital assets and their retention despite volatility; trust terms can displace the prudent investor default of diversification (UPIA §3). Catch: no clause removes the duty to keep the keys safe.
- Holding coins in a revocable trust or in your own name keeps the step-up: inherited bitcoin takes its date-of-death value as basis (IRC §1014). Catch: an irrevocable grantor trust kept out of the estate gets no step-up (Rev. Rul. 2023-2).
- Tax treatment is settled and free to follow: the IRS treats virtual currency as property (Notice 2014-21), so ordinary capital-gain rules apply. Catch: the owner or trust must still answer the digital-asset question on Form 1040 or 1041 each year.
MaterialsA copy of a trust’s investment and administrative powers clauseA list of the kinds of digital assets a family might ownNotes from the Blockchain Academy lessons on keys and wallets
Wonder
- If no one can touch a bitcoin, how can anyone own it?
- Does a trust need special wording before it can hold crypto?
- Who is responsible if the coins are lost?
Explore
- In common-law systems, a trustee can hold almost any property that can be owned and transferred. The first question for bitcoin is therefore whether it counts as property at all. Courts have increasingly said yes. In AA v Persons Unknown (2019), the English High Court treated bitcoin as property when it granted an injunction over stolen coins. For US federal tax purposes, the IRS has treated virtual currency as property since Notice 2014-21. Neither answer settles every question, but both point the same way.
- Courts have also recognised crypto held on trust for others. In Ruscoe v Cryptopia (2020), the High Court of New Zealand decided that a failed exchange held its customers’ cryptocurrency on trust for them, so the coins belonged to the customers rather than the exchange’s creditors. The case shows that ordinary trust principles, such as certainty of subject matter and the separation of legal and beneficial ownership, can be applied to digital assets once the facts are clear.
- Whether a particular trust may hold bitcoin depends on its terms and on local law. Many older trust documents limit investments or say nothing about digital assets. Where the trust is silent, the trustee’s general investment powers and the prudent investor rule govern the decision. A settlor who wants crypto held, or wants it kept even though it is volatile, can say so expressly in the document, and many modern trusts do.
- Holding bitcoin is not like holding a bank balance. Whoever controls the private keys can move the coins, and a lost key usually means lost coins. A trustee therefore has to decide how the keys are held: through a regulated custodian, through self-custody with strong controls, or through a shared arrangement such as multisignature. Lesson 9.1.2 covers custody; the point here is that the duty to safeguard trust property applies to keys as much as to deeds.
- Volatility raises separate duties. A trustee must consider risk, diversification and the interests of different beneficiaries, including those who benefit now and those who benefit later. A large, concentrated crypto position can be hard to justify unless the trust document allows it or the circumstances support it. Valuation for tax and reporting also has to be handled carefully, which lesson 9.1.6 explains.
- The practical answer, then, is that a trust can usually hold bitcoin, but the document, the trustee’s skills and the custody plan matter more than the asset itself. Families thinking about this usually look at three things together: what the trust document allows, who will hold and protect the keys, and how the trustee will report on an asset whose value can swing widely from one month to the next.
Key facts
- In AA v Persons Unknown (2019) the English High Court treated bitcoin as property for the purpose of an injunction.
- In Ruscoe v Cryptopia (2020) the High Court of New Zealand held that an exchange held customers’ cryptocurrency on trust.
- The IRS has treated virtual currency as property for US federal tax purposes since Notice 2014-21.
- Whether a trust may hold crypto depends on its terms and local law; where it is silent, general investment powers and the prudent investor rule apply.
- Whoever controls the private keys can move the coins, so custody of keys is part of the trustee’s duty to safeguard trust property.
- Volatility and concentration engage the trustee’s duties of prudence, diversification and impartiality.
Exercise nine, six, three, one
9CollectGather 9 kinds of property a trust might hold, from land and shares to digital assets.
6ClusterSort the 9 into 6 groups: registered in a public register, held through an intermediary, held by possession, held by keys, easy to value, hard to value.
3DistillReduce the 6 groups to 3 questions a trustee must answer before holding any new kind of asset.
1CrystallizeWrite 1 sentence on what makes bitcoin different from other trust property, and what does not.
Fact check
Dates, figures and claims checked against the published sources listed below.