How Digital Assets & Cryptocurrency Complicate Trust Disputes in California

How Digital Assets & Cryptocurrency Complicate Trust Disputes in California

The rise of digital assets like cryptocurrency, NFTs, online accounts, and virtual holdings has upended traditional estate planning. In California trust litigation, these assets often trigger a new wave of legal complications. Whether it’s a Bitcoin wallet with no known key, an NFT sitting in a forgotten digital vault, or a high-value social media account monetized through content creation, digital assets raise fundamental questions about access, valuation, fiduciary duty, and the rights of beneficiaries.

Below we explore how digital assets and cryptocurrency are changing the nature of trust disputes in California and what beneficiaries need to know when these assets are involved.

The Hidden Complexity of Digital Assets in Trusts

Traditional trust litigation often centers around physical assets like real estate, bank accounts, securities, or tangible property – in other words, your stuff. Digital assets, by contrast, are intangible and often anonymous. Some may not even be known to the trustee or beneficiaries at the time of the trustor’s death. This lack of visibility creates a serious problem.

Cryptocurrency, for example, can only be accessed with the private keys held by the original owner. If the decedent failed to share that key, or stored it in a password-protected app or device that no one can open, the asset may be lost forever.

Even when digital assets are known, trustees and beneficiaries face major obstacles in identifying the location of those assets, accessing them legally, and assigning them a fair market value.

Four Major Litigation Issues Arising From Digital Assets

When these kinds of assets show up in a trust administration or distribution process, they often lead to the following legal disputes:

1. Access and Control

The core issue in many digital asset trust disputes is access. Who has the legal authority to access a decedent’s digital holdings?

Under California law and the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), a fiduciary may be granted access to digital assets if explicitly authorized in estate documents. Without such authorization, access is often denied by service providers under federal privacy laws like the Stored Communications Act.

A trustee may find themselves stonewalled by companies like Coinbase, Google, or Apple, even if they know the decedent had accounts there. Worse, some digital wallets are completely decentralized and not associated with any custodian. If no one has the private key or recovery phrase, no one can access the funds—potentially costing the trust and its beneficiaries thousands or even millions of dollars.

2. Valuation and Volatility

Unlike real estate or public stocks, digital assets can fluctuate in value rapidly. A cryptocurrency wallet holding Ethereum may have been worth $500,000 on the date of death, but could drop to $200,000 or rise to $1 million within weeks.

This raises questions about how to value the assets for trust distributions. Should the trustee use the date-of-death value? The value at the time of sale? What if the asset wasn’t even discovered until long after probate began?

Fiduciaries have a legal obligation to reasonably value trust assets and distribute them accordingly. When digital assets are involved, fulfilling that obligation becomes far more complex—and the margin for error increases the likelihood of litigation.

3. Custody and Security

Once a digital asset is identified, trustees must take custody and protect it from loss, theft, or manipulation. That means understanding how to store cryptocurrency securely, including using hardware wallets, cold storage, or custodial accounts.

But many trustees are not financially or technically sophisticated enough to handle this. If a trustee mishandles a wallet key or fails to protect digital assets from cyber threats, they may be exposed to breach of fiduciary duty claims.

We’ve seen cases where assets vanished due to an insecure storage method or because a trustee tried to cash out the funds without understanding how the asset worked. These are not simple mistakes—they are litigable offenses that can result in personal liability.

4. Unknown or Unnamed Beneficiaries

Some decedents assign specific digital assets to beneficiaries. For example, a parent might leave an NFT collection to one child, or designate crypto holdings to fund a trust for grandchildren. But if the trust documents are vague—or fail to mention these assets entirely—the distribution of those assets becomes disputed.

In other cases, decedents may have used third-party custodians or private arrangements to transfer digital assets, leaving beneficiaries in the dark. Disagreements often arise between family members over what the decedent “really wanted,” especially when digital wealth is involved.

And unlike physical property, digital assets are often easier to conceal, making them a tempting target for dishonest fiduciaries or opportunistic family members.

The Intersection of Trust Law and Digital Asset Litigation

California trust law was not designed with cryptocurrency in mind. But the courts are quickly adapting. We’ve represented beneficiaries and family members in cases where digital assets were mismanaged, misappropriated, or hidden outright.

Here are a few legal principles that frequently apply in these types of disputes:

• Fiduciary Duty Still Applies. Whether an asset is a piece of real estate or a Bitcoin wallet, the trustee has the same duties: to act in the best interest of the beneficiaries, preserve value, and avoid self-dealing or negligence.
• Digital Asset Mismanagement Can Be Grounds for Removal. If a trustee fails to take appropriate steps to protect, identify, or distribute digital assets, the trustee may be removed from office or even forced to personally repay the trust.
• Intent Matters—But Only If It’s Documented. Courts may be sympathetic to a decedent’s intent, but only if it’s supported by written evidence. Vague oral instructions or assumptions rarely hold up in court when digital assets are on the line.
• Discovery Tools Can Uncover Digital Assets. Skilled trust litigators can subpoena email records, bank accounts, and other digital footprints to uncover hidden assets. While cryptocurrency may be anonymous by design, the trail of access and communication can lead back to the source.

Practical Steps for Beneficiaries in Digital Asset Disputes

If you believe digital assets were part of a decedent’s estate but aren’t being disclosed or distributed properly, take action early. Time is often a factor, especially when volatile markets are involved.

You should consider the following steps: requesting a full trust accounting, specifically asking whether digital assets were inventoried; demanding documentation of any custodial arrangements, wallets, or online accounts; seeking court intervention if the trustee refuses to disclose or investigate digital holdings; and retaining a digital asset forensic expert who can track activity on blockchain networks and locate wallets associated with the decedent

Trust Law Partners regularly consults with technical experts and digital asset investigators in trust litigation. These tools, combined with aggressive legal strategy, are often the only way to recover assets that would otherwise vanish.

Real-World Example: The Vanishing Wallet Case

In one of our recent matters, a decedent had multiple cryptocurrency holdings stored in software wallets across several platforms. The trustee claimed that no such assets existed and failed to account for them in the inventory.

After reviewing email records and device backups, we discovered that the decedent had purchased Ethereum and Litecoin over a span of five years, using multiple wallet apps. We retained a digital asset tracing expert who identified wallet addresses linked to those purchases. Ultimately, the court compelled the trustee to produce records, disclose the wallet contents, and transfer the holdings into a custodial account for distribution.

This case illustrates the importance of experience, strategy, and technical knowledge. Without our firm’s involvement, the beneficiaries would have lost over $300,000 in cryptocurrency.

Planning Ahead: What Can Be Done Now

For those setting up trusts or advising clients, the most important takeaway is this: digital assets must be explicitly addressed in trust documents. That means:

• Including language authorizing trustees to access and manage digital assets
• Maintaining a secure but accessible record of wallet keys, passwords, and two-factor recovery information
• Making clear designations of who should receive specific digital holdings

Without this kind of preparation, disputes are almost guaranteed. And when litigation arises, the consequences are far more expensive and time-consuming than they would have been with proper planning.

Digital assets and cryptocurrency have introduced a new frontier in California trust litigation. While these assets offer unprecedented opportunities for wealth, they also present serious challenges in valuation, control, and enforcement.

For beneficiaries, the most important thing is to act quickly and strategically. If you suspect that digital assets are being hidden, mismanaged, or ignored, don’t wait. Trustees are bound by fiduciary duties, and courts are increasingly willing to hold them accountable when they fail to properly handle digital wealth.

Trust Law Partners represents clients in complex trust and estate disputes, including those involving cryptocurrency, NFTs, and other digital assets. Our litigation-forward approach ensures that beneficiaries get what they’re entitled to—especially when the assets are volatile, elusive, or technologically sophisticated.

If you are concerned about the fate of digital assets in a trust or estate, or if you’re a beneficiary facing resistance from a trustee, contact Trust Law Partners, LLP at 833-982-2079 for a confidential consultation.

We know how to make digital assets count in court.