Bitcoin Fiduciary Duty in Estate Administration

Fiduciary Responsibility With Limited Technical Access

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

What Fiduciary Responsibility Means

This memo describes how fiduciary responsibility attaches to Bitcoin even when technical access is constrained or absent. It explains the tension between what the law expects of fiduciaries and what Bitcoin custody systems allow them to do.

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What Fiduciary Responsibility Means

A fiduciary is someone who holds a position of trust with respect to another person's assets. Executors, trustees, guardians, and certain financial professionals are fiduciaries. They have legal obligations that go beyond ordinary care.

Fiduciary duties typically include loyalty, prudence, and care. Loyalty means acting in the beneficiaries' interests, not your own. Prudence means making reasonable decisions with the information available. Care means taking appropriate steps to protect and manage assets.

These duties are defined by law and enforced by courts. A fiduciary who fails to meet them can be held personally liable. Beneficiaries can sue. Courts can remove fiduciaries, surcharge them for losses, or impose other penalties.

Fiduciary responsibility attaches to assets, not to the fiduciary's ability to control them. If an asset exists in the estate, the fiduciary has duties with respect to it—whether or not the fiduciary can actually access or manage it.

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Bitcoin Complications

For most assets, fiduciary responsibility and practical control are connected. An executor can contact a bank and gain access to accounts. A trustee can direct a brokerage to transfer securities. The fiduciary's legal authority translates into operational capability.

Bitcoin breaks this connection. A fiduciary may have full legal authority over Bitcoin in an estate and zero ability to access or move it. The Bitcoin network does not recognize fiduciary status. It responds only to cryptographic keys.

This creates situations where duties persist but capabilities do not. The law says the fiduciary is responsible for the Bitcoin. The technology says the fiduciary cannot touch it.

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Responsibility Without Access

An executor is appointed to administer an estate that includes Bitcoin. The will mentions it. Tax records confirm it. The fiduciary now has a duty to locate, secure, inventory, and eventually distribute this asset.

The executor searches for access credentials. No seed phrase is found. A hardware wallet is located but the PIN is unknown. An exchange account exists but two-factor authentication is tied to a phone that has been wiped.

The Bitcoin is part of the estate. The fiduciary is responsible for it. The fiduciary cannot access it.

This situation does not discharge the fiduciary's duties. The executor still has obligations: to document the asset, to attempt to locate access methods, to report to the court, to account to beneficiaries. The duties continue even when the asset remains frozen.

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Safeguarding Assets Beyond Control

Fiduciaries have a duty to safeguard estate assets—to protect them from loss, theft, or deterioration. For Bitcoin, this duty attaches even when the fiduciary has no ability to move the funds.

Safeguarding takes a different form when the asset cannot be accessed. It may mean securing the physical artifacts that could provide access: hardware wallets, paper backups, computers, phones. It may mean ensuring that no one else gains unauthorized access. It may mean documenting what is known so that future attempts at recovery are possible.

A trustee discovers a hardware wallet in a safe deposit box. The trustee cannot unlock it. But the trustee can ensure the device is stored securely, that its existence is documented, and that it is not lost or discarded during estate administration. Safeguarding what you cannot control means protecting the possibility of future access.

This is an unusual position. Traditional fiduciary practice assumes the fiduciary can act on assets. Bitcoin creates scenarios where the best the fiduciary can do is preserve the conditions that might someday allow someone else to act.

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Accounting for Inaccessible Assets

Fiduciaries have a duty to account—to provide accurate records of estate assets to courts, beneficiaries, and tax authorities. This includes assets that cannot be accessed.

An executor preparing an estate inventory lists Bitcoin as an asset. The executor knows it exists but cannot determine its exact value because the wallet cannot be opened. How do you account for something you cannot see inside?

The fiduciary may need to rely on external evidence: historical transaction records, exchange statements, tax filings, or blockchain data that shows balances at known addresses. The accounting may include disclaimers about uncertainty. The asset is listed even though its current state cannot be verified through direct access.

Tax obligations add another layer. Bitcoin in an estate may have tax implications—for the estate, for beneficiaries, or for ongoing reporting. These obligations exist whether or not the Bitcoin can be accessed. A fiduciary may owe taxes on an asset that cannot be sold to pay them.

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When Beneficiaries Expect Access

Beneficiaries named in a will expect to receive their inheritance. When that inheritance includes Bitcoin, they expect the executor to deliver it. They may not understand why this is difficult.

A daughter is named as the sole beneficiary of her father's Bitcoin holdings. She knows he had Bitcoin. The will confirms it. She waits for the executor to transfer the funds. Months pass. The executor explains that no access credentials have been found. The daughter is frustrated. She sees her inheritance named in documents but cannot receive it.

The fiduciary is caught between the duty to distribute and the inability to do so. The beneficiary has a legal right to the asset. The fiduciary has a legal duty to transfer it. But the transfer cannot happen without technical access that does not exist.

This gap can strain relationships and create disputes. Beneficiaries may suspect the fiduciary of incompetence, delay, or self-dealing. They may not understand that the obstacle is technical, not procedural. The fiduciary's responsibility persists through these tensions without any clear path to resolution.

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The Prudence Problem

Fiduciary duty includes prudent management of assets. For traditional investments, this might mean diversifying, avoiding excessive risk, and acting in accordance with the beneficiaries' interests. For Bitcoin, the meaning of prudence is less clear.

A trustee gains access to Bitcoin held in a trust. The trust instrument does not address cryptocurrency. The trustee must decide: hold the Bitcoin, sell it, or take some other action. Bitcoin is volatile. Its value can change dramatically in short periods. What does prudent management mean?

If the trustee sells and the price rises, beneficiaries may claim the sale was imprudent. If the trustee holds and the price falls, they may claim failure to diversify was imprudent. The fiduciary standards developed for traditional assets do not map cleanly onto an asset class that behaves like Bitcoin.

When the fiduciary cannot access the Bitcoin at all, a different problem arises: prudence may require attempting to gain access, but the attempts themselves carry risks. Hiring recovery services, experimenting with passwords, or interacting with wallets can lead to permanent loss if done incorrectly. Doing nothing may also be criticized. The fiduciary faces choices where every option carries risk.

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Liability for Inaccessible Assets

Can a fiduciary be held liable for failing to deliver an asset that cannot be accessed? This is an area where legal standards and technical realities collide.

If the fiduciary took reasonable steps to locate access credentials and failed, liability may not attach for the inaccessibility itself. But "reasonable steps" is a standard that can be debated. Did the fiduciary search thoroughly enough? Should they have hired a specialist? Did they properly secure artifacts that might have enabled access?

If the fiduciary's actions caused access to be lost—accidentally wiping a device, discarding a paper backup, or triggering a lockout mechanism—liability becomes more plausible. The line between reasonable effort and negligence is drawn in hindsight, by courts and beneficiaries who may not understand the technical details.

Actions taken without full understanding of custody constraints can result in irreversible loss. Whether such outcomes constitute negligence depends on context and knowledge at the time.

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Documenting the Situation

When fiduciaries encounter inaccessible Bitcoin, documentation becomes especially important. Records of what was found, what was attempted, and what obstacles exist create a trail that demonstrates diligence.

An executor who documents every step—the search for credentials, the condition of devices found, communications with exchanges, consultations with specialists—builds a record that may protect against later claims of negligence. The documentation does not solve the access problem, but it establishes that the fiduciary acted responsibly within the constraints they faced.

This documentation also preserves information for future attempts. An estate may close with Bitcoin unresolved. Years later, technology may change, services may emerge, or lost information may surface. Records created during administration can support recovery efforts long after the fiduciary's role has ended.

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The Persistence of Duty

Fiduciary responsibility does not evaporate because an asset is inaccessible. The duty to act in beneficiaries' interests, to safeguard assets, to account accurately, and to manage prudently remains—adapted to the constraints of the situation, but not eliminated by them.

This is the core tension. The legal system imposes duties that assume the fiduciary can act. The technical system may prevent action entirely. The fiduciary exists in the gap, responsible for outcomes they may be unable to produce.

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Assessment

Fiduciary responsibility attaches to Bitcoin when it is part of an estate, regardless of whether the fiduciary can access or control it. Duties to safeguard, account, and manage prudently persist even when technical barriers prevent action.

This creates a structural tension. The law expects fiduciaries to act on assets. Bitcoin custody may make action impossible. Fiduciaries operate within this gap—responsible for outcomes, constrained in capability, accountable for decisions made under conditions the law did not fully anticipate.

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System Context

Examining Bitcoin Custody Under Stress

Telling an Attorney About Bitcoin

Financial Advisor Fiduciary Exposure to Bitcoin Custody Risk

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