Are There Trusts for Crypto? Analyzing the Risks

Can cryptocurrencies like Bitcoin or Ethereum be placed into a trust? And if so, what are the implications? Trusts have long been a way to protect and manage wealth for future generations, but the rise of digital assets is testing their limits. 

While some investors are exploring the idea of holding crypto in trusts, the risks involved make this a complex and highly cautious decision.

Understanding Trusts in the Context of Crypto

A trust is a legal arrangement in which one party, known as the trustee, holds and manages assets on behalf of another party, the beneficiary. These arrangements are designed to preserve wealth, minimize taxes, and protect assets over time. 

Traditionally, the assets held in trusts include real estate, stocks, cash, or valuable property. However, with digital assets now playing a greater role in personal portfolios, some are beginning to ask if crypto can be part of a trust as well.

Cryptocurrencies, unlike traditional financial assets, are decentralized and largely unregulated. They are stored digitally, can fluctuate in value dramatically, and often require private keys and specialized storage methods. 

These characteristics raise serious concerns for trustees, whose duty is to act conservatively and responsibly in preserving the value of trust assets.

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Why Crypto Challenges the Role of Trustees

Trustees are expected to avoid high-risk investments unless specifically instructed otherwise. Cryptocurrencies are considered highly volatile, with prices that can surge or crash within hours. 

This makes crypto unsuitable for most traditional trusts, where the goal is to preserve value and minimize exposure to loss.

Moreover, the platforms where cryptocurrencies are traded, such as Kraken or Bitfinex, are often unregulated. These platforms have faced regulatory scrutiny and, in some cases, security breaches. 

If crypto assets held in a trust are stolen due to a hacked exchange, there is usually no insurance or recourse for recovery. This exposes trustees to liability if the trust's assets are lost or mismanaged.

Legal and Security Risks

From a legal standpoint, crypto presents difficulties in regulation, taxation, and reporting. Many jurisdictions have not clearly defined how cryptocurrencies should be handled in legal instruments like wills and trusts. This creates a grey area that can complicate estate planning.

Security is another critical issue. Trust assets must be protected, and with cryptocurrencies, this means managing digital wallets, passwords, and recovery phrases with extreme care. 

Cold wallets—offline storage devices—are often used to reduce risk, but even these are not entirely immune to human error or physical damage.

Additionally, the volatility of cryptocurrency means that even if the crypto is not directly compromised, its market value could fluctuate dramatically. 

A breach at another exchange, even if unrelated to the trust's own holdings, could reduce the overall market price and affect the trust’s value.

Read also: Ripple Victory Sparks Institutional Trust: XRP Ripple Back in the Spotlight

The View from Financial Authorities

Many central banks and regulators remain skeptical of cryptocurrency as a long-term investment vehicle. In 2018, Bank of England Governor Mark Carney criticized cryptocurrencies, saying they are unstable and not reliable stores of value. 

Whether or not that perspective has changed in recent years, it reflects a continued hesitation from traditional financial leaders to integrate crypto into structured financial instruments like trusts.

Trust law is built on predictability, structure, and fiduciary responsibility. Crypto, by contrast, introduces uncertainty and rapid change. These opposing qualities make the combination difficult to reconcile.

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Frequently Asked Questions (FAQ)

Q: What is a trust in crypto? 

A: Investing Bitcoin in a trust allows a managing investor to ensure a trusted person can access and manage the Bitcoin, providing clear instructions on its use even after the original owner's death. This helps protect the assets and ensures they are distributed as intended.

Q: Can I buy crypto on trust? 

A: Yes, you can buy Bitcoin and other cryptocurrencies using the Trust Wallet app through its trusted partners, with various payment options like debit/credit cards, mobile payments, and bank transfers.

Q: Can you hold crypto in trust? 

A: Yes, trusts can hold and manage cryptocurrency. However, when setting up a trust for crypto, you need to clearly identify who has access, when the crypto is transferred to the trust, and what the trust is allowed to do with it.

Q: How to create a crypto trust? 

A: To create a crypto trust, you should: create a will or trust document; name a beneficiary; consider naming a digital executor or trustee; make a list of your crypto assets and how to access them; record your crypto keys securely; and regularly update your estate plan.

Q: Is trust crypto safe? 

A: Trust Wallet prioritizes user security as a non-custodial wallet, meaning you have full control over your private keys and funds. This reduces the risk of theft or loss because Trust Wallet doesn't access your sensitive information.

Q: Can you transfer crypto to a trust? 

A: Yes, you can create a trust and use it to store cryptocurrencies and NFTs, as well as other assets. This helps avoid probate and keeps information private.

Q: How do I get money out of trust crypto? 

A: To get money out of Trust Wallet, you generally need to: open the Trust Wallet app and select the cryptocurrency you want to withdraw; send the crypto to an exchange that supports fiat withdrawals; sell your crypto for your desired local currency; and then withdraw the fiat to your bank account.