Trusts are a common and effective tool for managing assets and planning succession in New Zealand. With digital assets now an essential part of many portfolios, trusts must evolve to include them. This article examines the legal considerations, risks, and compliance issues involved in holding digital assets within trusts.
Why holding digital assets in trusts?
Trusts can provide continuity, flexibility, and protection for digital assets by:
- Allowing trustees to manage assets on behalf of beneficiaries;
- Protecting digital assets from creditor claims or family disputes; and
- Ensuring digital assets transfer smoothly upon incapacity or death.
Drafting trusts for digital assets
It is essential to explicitly include digital assets within the trust deed. Some drafting tips:
- Define digital assets broadly, including cryptocurrencies, online accounts, and digital intellectual property.
- Grant trustees powers to access passwords, encryption keys, and online platforms.
- Include authority to manage, transfer, or liquidate digital assets as necessary.
- Provide confidentiality and privacy safeguards aligned with the Privacy Act 2020.
Legal risks and compliance issues
- Access Barriers: Passwords, two-factor authentication, and encryption may hinder trustees.
- Platform Terms of Service: Some providers restrict account transfer or impose conditions on post-mortem access.
- AML/CFT Compliance: The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 applies to cryptocurrency holdings, requiring trusts to comply with customer due diligence.
- Tax Implications: The Income Tax Act 2007 governs the taxation of income or gains from digital assets held in trusts. Trusts must understand the tax treatment of cryptocurrencies and digital business income.
Trustee duties and best practices
Under the Trusts Act 2019, trustees have a duty to act prudently and in the best interests of the beneficiaries. For digital assets, this includes:
- Keeping up to date with technology and legal developments;
- Maintaining accurate records of digital assets;
- Seeking specialist legal and financial advice; and
- Regularly reviewing trust documents to reflect changes in technology and law.
Final thoughts
As digital assets become an integral part of New Zealand’s asset landscape, trustees and settlors must ensure trusts are appropriately drafted and managed to address access, compliance, and tax risks.
Legal advice from specialists in trusts, estates, commercial, and property law is critical to protect and maximise the value of digital assets held in trusts. Get in touch with the experienced team at MoranLaw today.