Entity Setup
Safe Harbor for Digital Asset Trusts: How Trusts Can Stake Without Losing Tax Treatment
Trusts that invest in digital assets can now stake those assets under a safe harbor without jeopardizing their classification as investment or grantor trusts—here’s how to qualify.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## What Is the Safe Harbor Under Rev. Proc. 2025-31?
To help trusts conform to U.S. federal tax code, the IRS has created a **safe harbor** that allows certain trusts to stake digital assets like proof-of-stake cryptocurrencies **without losing** their status as investment trusts under § 301.7701-4(c) or as grantor trusts.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
### Key Requirements to Qualify:
1. **Trust Structure**:
- Must be legally a trust under state law.
- Trust interests must be **traded on a U.S. national securities exchange**, complying with its rules. The trust’s disclosures about staking should be approved by the SEC.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
2. **Single Digital Asset Type & Proof-of-Stake Network**:
- Trust can only hold **cash** and **one type of digital asset** (as defined in the IRS rules).
- That digital asset must be on a **permissionless** network using a **proof-of-stake** consensus mechanism.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
3. **Custodial Control**:
- A custodian must hold the digital assets and **control the private keys**, including while staking. The trust must retain ownership despite staking.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
4. **Allowed Trust Activities**:
- Trust must limit activities to receiving deposits, holding assets, paying expenses, selling for redemptions, distributing staking rewards periodically (at least quarterly), maintaining liquidity reserve, etc.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
### Amendments Window:
Trusts that aren’t yet staking or that haven’t updated their trust agreements can do so within **nine months beginning November 10, 2025** to adopt required staking authorization and comply retroactively.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
## Examples to Illustrate
| Scenario | Meets Safe Harbor? |
|---|---|
| Trust A holds ETH (proof-of-stake asset), trades shares on NYSE, custodian controls keys, staking rewards distributed quarterly | ✅ Likely qualifies under safe harbor. |
| Trust B holds multiple types of crypto assets (ETH + SOL), with no requirement to restrict to one asset type | ❌ Doesn’t meet single-asset requirement. |
| Trust C is not traded on a securities exchange; private trust | ❌ Fails requirement for trading and SEC oversight. |
## Implications for Trusts & Beneficiaries
- Trusts that previously avoided staking out of fear of losing favorable tax treatment can now consider staking under defined parameters.
- Beneficiaries may receive staking rewards either **in kind** or in cash, periodically; this affects trust distributions and fiduciary duties.
- Trust accounting and compliance burdens: record-keeping, custody, disclosures, and meeting liquidity requirements.
## Actionable Steps for Trusts Considering Staking
- Review trust instrument (agreement) now to ensure it authorizes staking and meets the safe harbor rules. Amend during the nine-month window if needed.([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- Verify your asset is proof-of-stake and in a permissionless network. Many newer blockchain networks qualify; older ones may not.
- Ensure custodian arrangement is clear: who holds keys, lacks control until redemption, etc.
- Structure reward distributions per policy: in kind or cash, ensuring fairness across beneficiaries.
- Keep disclosures, SEC filings, liquidity reserve and other required documentation well maintained.
## Why the Safe Harbor Is Important
- **Clarity & control**: Removes much of the ambiguity around proof-of-stake and tax treatment.
- **Opportunities for yield**: Trusts can generate staking rewards, potentially a growing source of income.
- **Avoid unexpected tax loss**: Without safe harbor, trusts risk losing investment trust status, leading to adverse tax treatment.
## Summary
If your trust is considering staking or already doing so, this safe harbor is an opportunity to align operations without sacrificing favorable tax status. With clear requirements and a defined amendment window, planning now can make the difference between compliance and costly missteps.