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Trust Law/Level IX · Trusts on chain/9.1 Digital assets in trust/Lesson 7

Directed trusts for digital assets

How directed-trust statutes split investment and custody decisions from a trustee’s other duties, what Wyoming, South Dakota and Nevada law provide, and which kinds of chartered institutions hold digital assets.

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.

  1. Least cost: under the Uniform Directed Trust Act, name a relative trust director over digital-asset investment and keys, with a low-fee administrative trustee; a complying directed trustee is liable only for its own willful misconduct. Catch: the governing state needs that Act or similar law.
  2. Choose governing law deliberately: Wyoming (W.S. §4-10-718), South Dakota (SDCL ch. 55-1B) and Nevada (NRS ch. 163) have directed-trust statutes, and South Dakota imposes no state income tax. Catch: the settlor’s or beneficiaries’ home state may still tax trust income.
  3. If a custodian is wanted, a Wyoming bank may provide digital-asset custody under W.S. §34-29-104, with the customer choosing by written agreement how each asset is held. Catch: a charter means supervision, not a guarantee against loss.
  4. A trust director owes the same fiduciary duty as a trustee in a like position, so an unpaid family director saves fees but carries liability. Catch: define in writing who controls keys, transfers and custody, because the statute only supplies defaults.

MaterialsThe Uniform Directed Trust Act (2017), free on the Uniform Law Commission website, or your state’s directed-trust statuteWyoming Statutes §4-10-718 (directed trusts) and title 34, chapter 29 (digital assets), free on the Wyoming Legislature websiteThe New York Department of Financial Services page on virtual currency businesses, which explains its limited purpose trust charters

Wonder

  1. What must a directed trustee do if a direction about a digital asset looks clearly wrong?
  2. Why would a settlor give investment decisions about crypto to someone other than the trustee?
  3. Which state laws actually deal with digital assets, and which are general trust statutes?

Explore

  1. A directed trust splits powers that a single trustee would normally hold. The trust document gives a person other than the trustee, such as an investment adviser, the power to direct the trustee on investments, distributions or other matters. The Uniform Directed Trust Act (2017), enacted in a number of US states, calls this person a ‘trust director’ (lesson 2.3.3). The trustee keeps legal title and carries out the directions. For digital assets, a settlor might give a family member or adviser the power to decide whether to hold, sell or move them, while a professional trustee handles records, accounts and tax filings. This lesson describes the arrangement and does not recommend it.
  2. Under the Uniform Directed Trust Act, a trust director has the same fiduciary duty as a trustee in a like position, unless the document or the Act provides otherwise. A directed trustee that follows a direction is liable only for its own willful misconduct, and must not follow a direction whose compliance would amount to willful misconduct. So a directed trustee is not simply a clerk, but it is also not answerable for the wisdom of every direction. The trust document should state clearly who decides on custody, keys and transfers, because the statute only supplies defaults.
  3. Some states have their own directed-trust statutes rather than the uniform act. Wyoming’s trust code (W.S. §4-10-718) treats a trustee who follows a trust protector’s or trust advisor’s directions as an ‘excluded fiduciary’ for those duties, with the person directing becoming the fiduciary in its place. South Dakota has a chapter on directed trusts (SDCL chapter 55-1B), and Nevada’s trust law (NRS chapter 163) also provides for trust advisers who direct a trustee. These are general statutes that apply to any trust asset; they are not written only for crypto, and lists online of ‘crypto trust statutes’ should be checked against each state’s code.
  4. Wyoming also has laws aimed at digital assets. W.S. §34-29-102 classifies digital assets as intangible personal property for purposes of its Uniform Commercial Code, and §34-29-104 lets a bank provide custodial services for digital assets, after notice to the banking commissioner, with segregation and audit rules; the customer chooses, by written agreement, how each asset is held. Wyoming’s Special Purpose Depository Institutions Act (W.S. §13-12-101 and following), enacted in 2019, charters fully reserved banks whose permitted activities include custody, fiduciary asset management and custodial services for digital assets.
  5. In New York, the Department of Financial Services licenses virtual currency businesses under its BitLicense regulation (23 NYCRR Part 200, issued in 2015) or charters them as limited purpose trust companies under the New York Banking Law. DFS notes that a limited purpose trust company can exercise fiduciary powers, while a BitLicensee cannot; it has granted such charters to digital asset firms since 2015. A charter or licence means a firm is supervised; it does not guarantee against loss, and this lesson does not suggest using any institution.
  6. A directed structure does not remove risk; it allocates it. If a director directs a transfer to the wrong address, a blockchain transaction usually cannot be reversed, and the question becomes who is liable under the statute and the document (lesson 9.1.2). Before relying on a directed trust, check which state’s law governs it, whether that state has enacted the Uniform Directed Trust Act or its own statute, how the document divides powers over keys and custody, and how any custodian is regulated. Costs vary widely by provider and complexity; this lesson gives no figure.

Key facts

  • The Uniform Directed Trust Act (2017) lets a ‘trust director’ direct a trustee; a directed trustee that complies is liable only for its own willful misconduct.
  • Under the Act, a trust director has the same fiduciary duty as a trustee in a like position, unless the document or the Act provides otherwise.
  • Wyoming (W.S. §4-10-718), South Dakota (SDCL ch. 55-1B) and Nevada (NRS ch. 163) have directed-trust provisions that apply to any trust asset, not only crypto.
  • Wyoming W.S. §34-29-104 lets a bank provide custodial services for digital assets after notice to the banking commissioner.
  • Wyoming’s Special Purpose Depository Institutions Act (2019) charters fully reserved banks that may provide custody and fiduciary services, including for digital assets.
  • New York DFS supervises virtual currency firms by BitLicense (2015) or by limited purpose trust charter; only a trust company can exercise fiduciary powers.

Exercise nine, six, three, one

9CollectList up to 9 rules about directed trusts or digital asset custody from this lesson or a statute you are reading (some sources give fewer), such as who may direct a trustee, when a trustee must refuse a direction and who may hold digital assets for others.
6ClusterSort them into 6 categories: the trust director’s powers, the directed trustee’s liability, state directed-trust statutes, Wyoming digital asset laws, New York charters, and facts you are unsure about.
3DistillReduce the 6 categories to 3 groups: who decides, who holds the assets, and who answers if something goes wrong.
1CrystallizeWrite 1 sentence explaining, in your own words, why a directed trustee that follows a direction is not liable for every loss under the Uniform Directed Trust Act.

Fact check

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

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