Traditional fiduciary duties increasingly have a technological dimension as digital assets become a more common component of trust structures and estates. Trustees and executors are no longer concerned solely with conventional assets such as real property, bank accounts, shares, and physical possessions. The growing prevalence of cryptocurrencies, digital securities, non-fungible tokens, online investment accounts, and other digitally held assets means that fiduciaries must ensure that, not only can they establish legal ownership, but also the practical mechanisms by which such assets can be identified, accessed, secured, administered, valued, and ultimately transferred.
Accessing and Securing Digital Assets
This can be particularly difficult where access depends upon private keys, passwords, seed phrases, multi-factor authentication, encryption, or third-party custodians. Unlike many traditional assets, where ownership can generally be established through documentation and access can be restored through established institutional procedures, the loss of a private key or essential authentication information may render a digital asset effectively inaccessible. This may occur even where the fiduciary has clear legal authority to deal with the asset.
The Importance of Trust & Estate Planning
Accordingly, trust instruments should expressly contemplate and address digital assets. Appropriate procedures should be established for identifying and recording relevant information, maintaining inventories of digital holdings, managing access credentials, and ensuring that sensitive security information is disclosed only to authorised individuals. Fiduciaries must also carefully consider their duties of confidentiality, cybersecurity and data protection when handling such information. Particular care is required to ensure that records containing passwords, private keys, or recovery phrases are not maintained in an insecure manner or made unnecessarily accessible to employees, beneficiaries or third parties.
There are also important questions concerning the use of specialist service providers. Trustees may need to engage custodians, digital asset specialists, valuation experts, cybersecurity professionals, or other advisers where they lack the technical expertise necessary to administer particular digital assets. Any delegation or reliance on third parties must, however, be consistent with the fiduciary’s underlying duties and applicable regulatory requirements.
Valuation Challenges
Valuation of such assets presents a further difficulty. Digital assets can be highly volatile, may trade across multiple platforms and jurisdictions, and may have limited or uncertain liquidity. Fiduciaries may therefore need to establish an appropriate valuation methodology for accounting, tax, distribution, and reporting purposes. Questions may also arise concerning the recovery of assets where access information is incomplete or where assets are held through overseas or decentralised platforms.
Finally, the potential use of certain digital assets and related technologies in money laundering and other financial crime, introduces additional regulatory complexities. Trustees and executors must remain vigilant to source of funds and source of wealth issues, transaction monitoring, financial sanctions, and applicable anti-money laundering obligations.
The Future of Fiduciary Administration
Ultimately, effective fiduciary administration increasingly requires a combination of legal authority, technological understanding, and robust security procedures to ensure that digital assets are preserved and properly administered in accordance with the settlor’s wishes or the terms of the trust.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
