Irrevocable Trusts for Crypto and Digital Assets
Learn About the Benefits of Holding Crypto and Other Digital Assets in an Irrevocable Trust from Oberheiden P.C.’s Asset Protection Lawyers
Asset Protection Team Lead
Attorney & CPA
Asset Protection Team Lead
Former DOJ Trial Attorney
If you have substantial cryptocurrency holdings or own other digital assets that you don’t want to lose, placing them into an irrevocable living trust could be a good solution. When structured and funded properly, an irrevocable trust is much more difficult to change after it’s been set up, they not only afford strong asset protection benefits, but they can afford significant tax benefits as well.
There are several types of irrevocable trusts, each of which has its own unique set of benefits and limitations. When it comes to deciding where to form an irrevocable trust, there are strategic considerations involved here as well. As a result, informed decision-making is critical, and crypto and other digital asset investors will want to work closely with an experienced asset protection lawyer who can help them maximally leverage the benefits that are available.
Benefits of Holding Crypto and Digital Assets in an Irrevocable Trust
The benefits of holding crypto and other digital assets in an irrevocable trust broadly fall into three main categories. While the specific benefits (and limitations) of different types of irrevocable trusts vary, the benefits of establishing an irrevocable trust generally include:
- Asset Protection – For many of our clients, the main purpose of forming an irrevocable trust is asset protection. When structured and funded properly, many types of irrevocable trusts can shield crypto and other digital assets from both commercial and judgment creditors.
- Tax Planning – Placing crypto and other digital assets into an irrevocable trust can serve valuable tax planning benefits as well. Not only does establishing an irrevocable trust provide an opportunity to bypass estate and gift taxes, but it can help investors avoid state income tax liability in many circumstances as well.
- Estate Planning – Along with bypassing estate and gift taxes, placing crypto and other digital assets into an irrevocable trust also serves a variety of other estate planning functions. It avoids probate and can ensure your wishes are followed after you pass, such as who will receive your crypto and other digital assets after your death, among others.
When your goal (or one of your goals) is asset protection, timing is important. Not only must investors place the assets they want to protect into a trust before a claim arises, but they must generally do so two to four years before any potential liabilities accrue. This is because the laws in many jurisdictions allow creditors to unwind transactions that place assets into an irrevocable trust if these transactions occur within a specified time period. Once the applicable statute of limitations for creditors’ claims expires, then an irrevocable trust will serve its intended asset protection functions.
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Dr. Nick Oberheiden
Founder
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Lynette S. Byrd
Former DOJ Trial Attorney
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Brian J. Kuester
Former U.S. Attorney
Hon. Kevin McCarthy
55th Speaker, U.S. House of Representatives (ret.)
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Mike Pompeo
Of Counsel
Former U.S. Secretary of State
John W. Sellers
Former Senior DOJ Trial Attorney
Linda Julin McNamara
Federal Appeals Attorney
Nicholas B. Johnson
Former Prosecutor
Roger Bach
Former Special Agent (DOJ)
Chris J. Quick
Former Special Agent (FBI & IRS-CI)
Michael S. Koslow
Former Supervisory Special Agent (DOD-OIG)
Ray Yuen
Former Supervisory Special Agent (FBI)
Choosing Where to Form an Irrevocable Trust (and Which Form to Use)
As we mentioned above, there are several types of irrevocable trusts. Irrevocable trust distributions can vary under state law in the United States (and under the laws of various foreign countries), so the laws in the jurisdiction where a trust is to be formed dictate the options that are available.
With that said, crypto and digital asset investors have broad discretion to choose the jurisdiction (and the type of irrevocable trust) they want to use. While state laws in the U.S. generally require some “nexus” to the state in order to form an irrevocable trust and take advantage of the benefits these laws afford, this nexus can typically be established by appointing a trustee in the state. Trust companies and law firms generally offer this service for a relatively modest fee.
Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming are generally viewed as being among the “best” states for forming an irrevocable trust. This is due to the asset protection benefits, tax benefits, and flexibility that these states’ laws offer. Crypto and digital asset investors in the U.S. can use offshore trusts to protect their assets as well. Foreign countries with favorable irrevocable trust laws include Belize, the Cayman Islands, the Cook Islands, Nevis, and Luxembourg, among others. When establishing an irrevocable trust for crypto or other digital assets, carefully assessing your specific goals and priorities will be a key first step toward deciding which jurisdiction to use.
This will be a key first step toward deciding which type of irrevocable trust to use as well. A few of the most popular options are:
- Domestic Asset Protection Trusts (DAPTs) – Domestic asset protection trusts (DAPTs) leverage state laws in the U.S. and may protect your assets from creditors. Forming a DAPT is a desirable option for investors who do not want (or do not necessarily need) to move their holdings offshore.
- Foreign Asset Protection Trusts (FAPTs) – Foreign asset protection trusts (FAPTs), or offshore trusts, can offer even greater protection than DAPTs in certain circumstances. While FAPTs can be more costly to form and manage than DAPTs, these additional costs will be well worth it for many well-heeled crypto investors.
- Grantor–Retained Annuity Trusts (GRATs) – A grantor-retained annuity trust (GRAT) is a specific type of domestic irrevocable trust that can offer investors greater access to the assets held in the trust—though this can also mean greater exposure to potential claims. Depending on an investor’s specific goals and concerns, this may or may not be a viable option.
At Oberheiden P.C., our asset protection lawyers help our clients make informed and strategic decisions about how best to protect their crypto and digital assets—whether this means forming an irrevocable trust or using a different asset protection strategy. We help our clients protect digital assets housed in the U.S. and around the world; and, when necessary, our lawyers and consultants can also take action on behalf of our clients to respond to the trust’s external threats such as lawsuits and cybersecurity intrusions.
FAQs: Using Irrevocable Trusts to Protect Crypto and Other Digital Assets
Can Crypto Be Placed in a Trust?
Yes, crypto can be placed in a trust—and placing crypto into a trust can be beneficial for several reasons. Not only can holding assets like crypto in a trust protect them from creditors, but it can afford tax and estate planning benefits as well.
Can Other Digital Assets Be Placed in a Trust?
Yes, along with crypto, other digital assets can also be placed into a trust. Once assets are transferred into an irrevocable trust, it can serve the same asset protection, tax planning, and estate planning benefits. Stablecoins, non-fungible tokens (NFTs), tokenized assets, and other types of digital assets can be held in a trust for the benefit of the trust’s creator (or “grantor”) as well as the grantor’s heirs or beneficiaries.
What Does it Mean for a Trust to Be “Irrevocable”?
If a trust is “irrevocable,” this generally means that the trust cannot be terminated by its creator (or “grantor”). This irrevocability is one of the key features that provides the asset protection benefits that many crypto and digital asset investors desire. However, grantors still generally have options for modifying the terms of their irrevocable trusts; and, while the options for terminating an irrevocable trust are limited, termination is still a possibility in some cases.
Can You Use a Revocable Trust for Crypto and Digital Assets?
While it is possible to place crypto and other digital assets into a revocable trust, doing so does not afford the same benefits as placing these assets into an irrevocable trust. Most significantly, revocable trusts do not provide the asset protections afforded by irrevocable trusts. If your main priority (or one of your main priorities) is to shield your crypto or other digital assets from future creditors, then a revocable trust will not meet your needs.
What Are the Downsides of Holding Crypto and Digital Assets in an Irrevocable Trust?
While holding crypto and other digital assets in an irrevocable trust can afford several benefits, there are restrictions involved as well. For example, once an investor places crypto or other digital assets into an irrevocable trust, the investor’s direct access to these assets will be limited. But, this is necessary to put these assets out of creditors’ reach, and the restrictions involved with establishing an irrevocable trust can be both well worth it and easily managed in many circumstances.
Where Should I Form My Irrevocable Trust?
Deciding where to form an irrevocable trust requires a careful assessment of your specific risks, needs, and priorities. An asset protection lawyer at Oberheiden P.C. can help you choose the right jurisdiction for your irrevocable trust, whether this is a jurisdiction in the U.S. or overseas.
How Do I Form an Irrevocable Trust for Crypto and Digital Asset Protection?
Forming an irrevocable trust for crypto and digital asset protection is a complex process, so experienced legal representation is required. If you think you may be interested in forming an irrevocable trust, we encourage you to contact us for more information.
Speak with a Crypto and Digital Asset Protection Lawyer at Oberheiden P.C.
If you would like to speak with a crypto and digital asset protection lawyer at Oberheiden P.C. to guide you about forming an irrevocable trust, we invite you to get in touch. To discuss your options with one of our senior lawyers in confidence, please call 888-680-1745 or request a complimentary consultation online today.
