Bitcoin Attorney Ethical Obligations

Ethical Duties When Legal Advice Meets Custody

This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.

The Competence Requirement

A client walks into a law office holding bitcoin. They want estate planning. They want tax advice. They want help structuring inheritance. The attorney faces a question: does competence in estate law include competence in bitcoin custody mechanics?

Attorney ethical obligations come from state bar rules. These rules define professional conduct. They establish competence requirements, confidentiality boundaries, and conflict disclosure duties. The rules were written before bitcoin existed. Bitcoin attorney ethical obligations emerge when established professional standards meet novel technical systems.

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The Competence Requirement

Bar rules require attorneys to provide competent representation. Competence means adequate legal knowledge, skill, thoroughness, and preparation. An attorney handling a will must understand probate law. An attorney drafting a trust must understand trust law and tax consequences.

Bitcoin custody adds a technical layer. The legal questions remain familiar. Who inherits? How are taxes calculated? What happens during incapacity? The technical questions introduce new territory. How do multisignature wallets work? What happens if the seed phrase gets lost? Can a trustee access bitcoin held in cold storage?

Attorneys trained in estate law may lack training in cryptographic systems. They understand legal authority but not operational access. They know how to draft trust documents but not how to test recovery procedures. The competence requirement encounters a knowledge gap.

Some attorneys address this by learning bitcoin technical details. They study how wallets work, how signatures get created, how blockchain transactions execute. This requires time, effort, and ongoing education as bitcoin systems evolve. Other attorneys recognize the knowledge gap and decline bitcoin-related representations or refer clients to specialists.

The ethical tension appears when an attorney accepts a bitcoin case without adequate technical knowledge. A client asks about custody arrangements. The attorney drafts a will mentioning bitcoin but does not understand how the beneficiary will access it. The legal document may be valid while being operationally useless. Competence in law does not automatically include competence in bitcoin mechanics.

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When Advice Crosses Into Technical Territory

A client asks whether they need a multisignature wallet. The attorney understands the legal implications of shared control. Multiple parties hold signing authority. This creates checks and balances. But does the attorney understand how multisignature transactions get constructed? Do they know what happens when one keyholder becomes unavailable?

Another client asks about hardware wallet security. The attorney knows that physical security matters. They advise the client to store the device securely. But do they understand the relationship between the hardware wallet and the seed phrase? Do they know that securing only the device without securing the seed phrase leaves the bitcoin exposed?

Technical questions appear within legal conversations. A client designing a trust asks how the trustee will access bitcoin after the grantor's death. This sounds like an estate planning question. The answer requires understanding how bitcoin custody transfers operationally, not just legally. The attorney who answers without technical knowledge may give advice that creates problems rather than solving them.

Bar rules allow attorneys to acquire knowledge through research and consultation. An attorney can learn about bitcoin or can consult with technical experts. Both paths require recognizing the knowledge gap first. The attorney who assumes their legal expertise covers bitcoin mechanics may give confident advice based on incomplete understanding.

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Confidentiality Obligations and Custody Information

Attorney-client privilege protects communications between attorney and client. This allows clients to share sensitive information without fear of disclosure. A client tells their attorney where they hid the seed phrase. That information is privileged.

Confidentiality continues after the client's death in most jurisdictions. The attorney cannot disclose client secrets even to heirs unless an exception applies. A deceased client told their attorney the location of their bitcoin hardware wallet. The executor asks the attorney where to find it. The attorney faces competing obligations: confidentiality to the deceased client versus duty to help the estate.

Some jurisdictions allow disclosure when necessary to carry out the client's intent. If the client clearly wanted the bitcoin to pass to heirs, disclosing the location might align with that intent. Other jurisdictions maintain strict confidentiality. The attorney cannot disclose without explicit client authorization, which cannot be obtained after death.

Clients may not understand these limitations. They share bitcoin custody details with their attorney expecting the attorney will pass that information to family after death. The attorney's bitcoin attorney ethical obligations may prevent this. The information stays protected while the family searches for access materials they cannot locate.

Some attorneys address this by documenting custody information in ways that can be disclosed. They create a letter of instruction separate from privileged communications. Or they encourage clients to use services that hold custody documentation outside the attorney-client relationship. These approaches work only if the attorney understands the disclosure limitations and plans accordingly.

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The Estate Planning Scenario

An attorney drafts a will for a client with bitcoin holdings. The client explains they hold bitcoin on a hardware wallet. The attorney includes language in the will: "I leave all my bitcoin holdings to my daughter."

The client dies. The daughter receives the will. It clearly states she inherits the bitcoin. She searches for the hardware wallet and finds it. She tries common PINs. None work. She contacts the hardware wallet manufacturer. They explain they cannot help without the seed phrase.

The daughter contacts the attorney who drafted the will. She asks if her father left information about the PIN or seed phrase. The attorney checks the file. No such information exists. The attorney recalls the client mentioning the hardware wallet but not providing access details.

The will is legally valid. It assigns ownership. It does not provide access. The attorney's competence in drafting wills did not include competence in identifying what information the beneficiary would need. The legal document is complete. The custody documentation is absent.

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Conflict of Interest Dimensions

An attorney represents a married couple. Both spouses own bitcoin jointly. The attorney helps them create estate plans. Later, the couple divorces. Both want the attorney to continue representing them in dividing assets including the bitcoin.

Bar rules prohibit representing clients with conflicting interests except under specific conditions. In a divorce, the spouses have opposing interests. The attorney cannot represent both without written consent after full disclosure of the conflicts.

Bitcoin custody adds complexity. During marriage, both spouses had access to the same wallet. Now one spouse claims they contributed more and deserve more. The other disputes this. The attorney who helped set up the original arrangement now has information relevant to both sides.

The conflict exists at the legal level and the technical level. Legally, the attorney knows what ownership structure the couple intended. Technically, the attorney may know who holds the seed phrase or controls the multisignature keys. This information affects both parties differently.

Another conflict scenario involves family members fighting over an estate. One heir believes the executor is mishandling bitcoin assets. They ask the attorney who represented the deceased to help them challenge the executor. The attorney represented the deceased, not the heir. They may have confidential information about the deceased's bitcoin custody intentions. Representing the challenging heir creates conflicts.

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When Technical Incompetence Creates Legal Exposure

An attorney advises a client to split their bitcoin across multiple wallets for security. This sounds reasonable. Diversification reduces risk. The attorney does not understand that each new wallet requires its own seed phrase backup. The client creates five wallets. They back up two seed phrases. They forget about the others.

Years pass. The client dies. The executor finds the two backed-up seed phrases. They recover bitcoin from two wallets. They never learn about the other three wallets because no documentation exists. The heirs receive a fraction of the bitcoin holdings. The rest becomes permanently inaccessible.

The estate sues the attorney for malpractice. The claim: the attorney gave technically incompetent advice that resulted in loss. The attorney argues they gave general security advice. The estate argues the attorney had a duty to understand technical implications of that advice.

Professional liability depends on the standard of care. What would a competent attorney do in similar circumstances? If most attorneys lack bitcoin technical knowledge, is giving generalized advice that creates problems still negligent? Or does accepting a bitcoin case create a higher standard requiring technical competence?

Different jurisdictions may answer differently. Some hold attorneys to a general competence standard. Others impose specialist standards when attorneys hold themselves out as knowledgeable in specific areas. An attorney who markets themselves as bitcoin-savvy faces higher expectations than one who occasionally encounters bitcoin clients.

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Disclosure Obligations When Knowledge Is Limited

Bar rules require attorneys to communicate with clients about the scope of representation. An attorney must explain what they will and will not do. This includes disclosing knowledge limitations.

A client asks an attorney to help with bitcoin estate planning. The attorney knows estate law but not bitcoin technical details. Ethical representation requires disclosing this limitation. The attorney explains they can handle legal documents but cannot verify custody arrangements or test recovery procedures.

Some attorneys make this disclosure. Others assume their legal expertise is sufficient. The client hears "I can help with your estate plan" and assumes this includes bitcoin-specific guidance. The attorney drafts documents based on what the client describes without verifying the client's technical understanding.

Miscommunication about scope creates gaps. The client believes their estate plan is complete. The attorney believes they handled the legal portions and the client handled the technical portions. Neither verified the other's understanding. The plan fails when tested because assumptions went unexamined.

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The Question of Ancillary Technical Services

Some attorneys offer to help clients document bitcoin custody information. They create instruction sheets. They store copies of seed phrases. They maintain custody documentation as part of the legal file. These services feel helpful.

Bar rules regulate what services attorneys can provide. Legal advice is clearly within scope. Document storage is common. But does helping clients set up bitcoin wallets or test recovery procedures cross into unauthorized practice of some other profession? Is it providing technical services outside legal expertise?

No clear regulatory guidance exists in most jurisdictions. Attorneys make judgment calls. Some limit themselves strictly to legal documents. Others engage more deeply with technical custody details. The risk is providing technical services without adequate knowledge or malpractice insurance coverage for technical errors.

Another dimension involves attorney liability for stored materials. If an attorney holds a copy of a client's seed phrase and that copy gets stolen from the law office, who bears the loss? The attorney's malpractice insurance may not cover cryptocurrency theft. The client may have assumed the attorney would secure the information with the same standards banks use, which law offices typically do not implement.

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Multi-Jurisdictional Complications

Bitcoin operates globally. A client lives in California but holds bitcoin accessed through servers in Switzerland using a wallet created by developers in Ukraine. If custody fails, which jurisdiction's laws apply? Which jurisdiction's attorney ethical rules govern?

An attorney licensed in one state may face discipline in that state for conduct involving clients or assets in other jurisdictions. A California attorney helping a client with bitcoin held on a foreign exchange may need to understand that jurisdiction's laws. Competence in California estate law does not include competence in foreign bitcoin regulations.

Cross-border issues also affect confidentiality. Some jurisdictions require reporting of certain asset transfers. Others prohibit disclosure. An attorney caught between conflicting obligations faces regulatory risk regardless of which obligation they follow.

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The Specialist Referral Gap

When attorneys recognize knowledge limitations, bar rules allow and sometimes require referral to specialists. An estate attorney who lacks bitcoin expertise can refer the client to someone who has it. This protects both attorney and client.

The challenge is identifying qualified specialists. No formal certification for bitcoin legal expertise exists. No bar specialization designates bitcoin competence. Attorneys seeking to refer must rely on reputation, self-description, or professional networks.

Some specialists market themselves as bitcoin attorneys but lack deep technical knowledge. They understand the legal framework around cryptocurrency but not custody mechanics. A referred client may encounter the same knowledge gaps with a specialist that they would have with a generalist.

Referral also fragments representation. One attorney handles the will. Another addresses bitcoin custody documentation. A third deals with tax implications. The client must coordinate between multiple professionals. Information may not flow smoothly. Each professional makes assumptions about what the others covered.

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Assessment

Bitcoin attorney ethical obligations emerge when established professional standards meet novel technical systems. Competence requirements force attorneys to decide whether their legal knowledge includes adequate bitcoin understanding. Confidentiality rules may prevent disclosure of custody information even when that prevents heirs from accessing bitcoin.

Conflicts of interest multiply when custody information affects multiple parties differently. Technical incompetence can create legal exposure through malpractice claims. Disclosure obligations require attorneys to communicate knowledge limitations that clients may not expect.

Attorneys navigate uncertain regulatory territory. No clear guidance exists for many bitcoin custody scenarios. Professional judgment fills the gaps. These judgments determine what information gets protected, what advice gets given, and what responsibilities get accepted. Understanding these ethical dimensions explains why bitcoin clients may not receive the comprehensive guidance they expect from legal professionals.

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System Context

Examining Bitcoin Custody Under Stress

Financial Advisor Fiduciary Exposure to Bitcoin Custody Risk

Telling an Attorney About Bitcoin

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