Crypto Custody Compliance for Trust Attorneys

As cryptocurrency becomes a recognized asset class in estate planning and fiduciary management, trust attorneys are facing new compliance challenges.

From private key custody to tax reporting, handling crypto assets like Bitcoin, Ethereum, and stablecoins involves a distinct legal framework.

Failure to implement proper custody protocols may expose attorneys to fiduciary liability, IRS scrutiny, or even cybercrime risk.

📌 Table of Contents (Click to Navigate)

What Makes Crypto Custody Unique?
Regulatory Guidance and Compliance Duties
Custody Options for Trustees and Executors
Best Practices to Mitigate Legal Risk

What Makes Crypto Custody Unique?

Cryptocurrency is not held by a bank, brokerage, or central custodian.

Instead, access is controlled by cryptographic private keys, which can be stored in hot wallets (online), cold wallets (offline), or hardware devices.

If a key is lost or mismanaged, the asset may become permanently inaccessible—something not typically encountered with traditional fiduciary assets.

Regulatory Guidance and Compliance Duties

The IRS treats cryptocurrency as property, requiring valuation at date of death and Form 8949 disclosures for gains/losses.

Trust attorneys are fiduciaries—legally bound to preserve and prudently manage digital assets under state trust codes and the Uniform Fiduciary Access to Digital Assets Act (UFADAA).

Some states now require disclosure of digital assets in trust accounting, and others define “reasonable care” as encryption-backed multi-sig access.

Attorneys must also comply with client identity verification (KYC), especially when using custodial services or exchanges.

Custody Options for Trustees and Executors

✔ Use third-party custodians like Anchorage, BitGo, or Coinbase Custody for large holdings.

✔ For smaller estates, a hardware wallet (e.g., Ledger, Trezor) held in a fireproof safe may be appropriate.

✔ Always document custody instructions in the estate plan—including passphrase storage and access instructions for beneficiaries.

✔ Avoid storing private keys in law firm systems or email archives, which are often insufficiently secure.

Best Practices to Mitigate Legal Risk

1. Include a digital asset clause in every trust or will, granting explicit access rights to fiduciaries.

2. Maintain an inventory of digital wallets, exchanges, and keys (or trusted contacts who can assist).

3. Advise clients on estate liquidity challenges—selling crypto to pay taxes can trigger capital gains.

4. Consider cybersecurity insurance and educate staff on crypto phishing risks.

5. Stay updated with SEC, IRS, and state bar guidance on digital asset fiduciary management.

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