Can I put my Bitcoin, Crypto or NFTs in a Trust?

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We all want to protect the assets we’ve worked hard to accumulate during our lives.

Which is why many people use trusts as an estate planning tool to protect their wealth and ensure it’s passed to the right people.

Increasingly, people are accumulating cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH) and NFTs (Non-Fungible Tokens) in their portfolios which they want to protect.

You’ll often hear financial experts refer to trusts in the same breath as bloodline planning – ie protecting your money to ensure it stays in your family.

Trusts are set up during a person’s lifetime to create a series of rules as to how the wealth placed within it is invested or distributed to others (or yourself if you lose mental capacity).

But can you transfer your Bitcoin into a trust in the UK and elsewhere? And do the same rules apply to cryptocurrency and NFTs as your other assets?

Can you transfer crypto or NFTs to a trust?

It is possible to set up a trust and hold your Bitcoin and NFTs in it alongside any other assets you choose.

This will enable you to decide how the crypto is distributed or used either during your lifetime or when you’re dead.

However, not every estate planner will agree to set up a trust when crypto is involved, mainly because digital coins are still perceived as a murky area and there’s a reluctance among some finance professionals to get involved with them.

Widespread reports about criminal activity involving crypto hasn’t helped, although in reality, fiat money is still by far the number one choice for nefarious actors.

However, if your Bitcoin is held on a well-known crypto exchange or other established financial institution it’s highly likely that you’ll be able to find someone willing to set up the trust for your coins.

An increasing number of institutional investors are dipping their toes into crypto and further industry regulation is coming which all serves to legitimize the asset class and bring it further into the mainstream.

This means that setting up a trust for your Bitcoin, NFTs and other crypto assets could potentially become a standard service offered by estate planners and financial advisers.

How do I transfer Bitcoin to a trust?

You need to use a professional estate planner or financial adviser to set up the trust on your behalf.

It’s a relatively simple process and involves drawing up a legal arrangement whereby you set the rules by which your assets are used or distributed.

Those administering the assets in the trust are called trustees, and the people who they’re looking after them for are called the beneficiaries.

It’s important the correct wording is used when drawing up the trust and that you select at least two trustees.

In the case of crypto being left in trust, it’s important that at least one of your trustees is knowledgeable in the sector and confident when dealing with Bitcoin wallets, exchanges and other areas of the digital currency world.

Why should I put my crypto in a trust?

There are several advantages to creating a trust for your crypto, as there are with any other asset.

These include:

Privacy. A will becomes a public document if a grant of probate is issued, but a trust does not. This means that information about your crypto is kept private, potentially avoiding the unwanted attention of bad actors.

Peace of mind. You can designate a person you trust to administer your crypto (and other assets) in your trust. As I’ve already said, it’s important to choose at least one trustee who has the ability to access your coins.

Ease of access. Using a trust means your crypto (and other assets) can be accessed immediately and is not locked away until a grant of probate is issued, which can take several months in the UK. This could be particularly important given the volatile price movements in the crypto market.

Awareness. You can include detailed instructions about where your crypto is held and how to access it for your trustees. This potentially makes it easier to access. You can also do this in a letter of wishes alongside your will.

Controlling your investment. Using a trust to pass on your Bitcoin and cryptocurrency means you can stipulate how it’s used far into the future. This can include setting a minimum time frame for the coins to be held, or even an exact sale date.

Crypto trusts and the tax implications

Different types of trusts are taxed differently and as such you’ll need to decide which is best for your individual circumstances.

I highly recommend that you seek professional help if you decide to draw up a trust as it can be a complex process and a legal minefield.

Under UK law, Bitcoin is treated as property which means that if your cryptoassets are placed into a lifetime trust, for example, you’re liable to pay Inheritance Tax (IHT) on assets after the nil rate band is taken into account (20% at the time of writing), less any allowance you haven’t used in the previous seven years. More on this later.

Related link: How to reduce or avoid Inheritance Tax on crypto

Placing cryptoassets into a trust may also create a Capital Gains Tax (CGT) liability as HMRC treats this event as a disposal of the asset. It is possible to defer this though using hold-over relief meaning any CGT won’t become due until the assets are distributed.

Compiling accurate valuations for tax purposes is an additional problem given the often stomach churning price swings of cryptocurrency, together with the fact that it’s a 24/7 market.

Related link: How to reduce or avoid Capital Gains Tax on crypto

Do crypto trusts save taxes?

Trusts are generally used to safeguard assets and ensure they’re used in the right way and kept within the family, but they’re sometimes employed as part of a tax reducing strategy during the estate planning process.

They’re often used to reduce an Inheritance Tax liability because in most cases once assets are transferred into a trust, they’re no longer part of your estate.

However, it’s not as straight forward as it sounds, and you may end up paying more.

When assets – such as Bitcoin and crypto – are placed into a trust they will be free from Inheritance Tax if you survive for a further seven years, in exactly the same way they would be if you simply gave them away to someone and what’s known as ‘taper relief’ is applied.

Other things to consider are:

• Trusts have to pay tax each year on any income and gains.
• Trustees are required to file a tax return each year to HMRC.
• Many trusts are subject to a ‘Principal Charge’ – a tax charge levied every 10 years.
• A charge is also made when assets are removed from the trust, or it’s liquidated.

There are many other factors to consider depending on your financial circumstances.

What sort of trust should I use for my crypto?

There are several different types of trusts which estate planners use, and each serves a different purpose.

Which trust to use is mainly dependent on what you need to achieve.

The different trusts include:

• A bare trust (also called a simple trust). This is used to preserve and transfer assets to children when they turn 18.
• Interest in possession trust. The beneficiary is able to receive benefits such as income from the trust immediately but has no control of the assets it contains. Income Tax becomes due on any cash they’re paid through the trust.
• Discretionary trust. Here, the trustees have absolute power to decide who benefits from the income and assets contained within the trust. Again, Income Tax has to be paid by the beneficiaries.
• Mixed trust (also called a hybrid trust). This is where different aspects from the trusts above are combined to cater for a specific set of circumstances.

In the UK, instructing a solicitor to draw up a trust for you is quite expensive depending on the complexity. It’s likely to cost between £800 to £1,400 ($1,083-$1,895).

Cryptoassets and a letter of wishes

Many people choose to write a letter of wishes to their loved ones giving detailed information about their assets and how to access them.

This is crucial when it comes to Bitcoin, especially if you hold your digital assets on a hardware wallet where there is no personally identifiable information linking you to the wallet address or crypto.

Failing to pass on all the information about your Bitcoin, including passwords, passphrases and private keys to a technically proficient person could result in your crypto and NFTs being lost forever.

This isn’t such as problem if your crypto is held in a third-party wallet on an exchange, such as Coinbase, as your account is connected to you in a similar way as your bank account.

Importantly, a letter of wishes will remain confidential in the event of your will becoming a public document.

Conclusion

A trust can be a great way to preserve your crypto wealth for future generations of your family.

But there are many things to consider before you take the plunge so professional advice is essential.

I can’t stress enough how it important it is to pass on all the information needed to access your crypto assets to someone you a) trust and b) has the knowledge and confidence to access them.

If your cryptocurrency is stored in multiple locations, ie an exchange, a ‘cold’ hardware wallet and a non-custodial wallet, it may be a good idea to arrange a ‘lesson’ with your trustees to ensure they know exactly what they need to do to access the coins, including how to sell them.

Don’t risk losing your cryptocurrency by failing to talk to your trustees.