Entity Setup
Transitioning Trusts with Digital Assets: Safe Harbor Rules Explained
Trusts holding or staking digital assets face uncertainty under US tax law—new safe harbor guidance clarifies how to retain investment-trust and grantor-trust status.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## The Challenge of Digital Assets for Trusts
Traditional trust structures under US tax law (investment trusts, grantor trusts) are governed by rules in sections such as §301.7701-4. But digital assets—especially on proof-of-stake blockchains—introduce complexities: when are staking rewards taxable, who controls private keys, and does staking alter ownership status? Without clear guidance, trusts may risk losing favorable tax status.
## New Safe Harbor Under Rev. Proc. 2025-31
In **Revenue Procedure 2025-31**, issued in November 2025, the IRS lays out a **safe harbor** that allows certain trusts to stake digital assets **without jeopardizing** their treatment as investment trusts under §301.7701-4(c) and as grantor trusts. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
### Eligibility Requirements
To use the safe harbor, a trust must satisfy all of the following:
1. **Listed on a national securities exchange**: interests traded publicly; SEC approved disclosures about staking. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
2. **Hold only cash and one type of digital asset** on a proof-of-stake permissionless network. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
3. **Custodian controls private keys**; trust retains ownership even during staking. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
4. **Protective measures in place**: liquidity reserves; risk policies; limitations on seeking market timing. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
5. **Distributions and staking rewards**: rewards must be in same digital asset or cash and distributed at least quarterly. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
Also, existing trusts have until **nine months after November 10, 2025** to amend their trust documents to adopt the requirements. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
## Practical Implications & Examples
- **If you’re managing a public investment trust** that wants exposure to staking rewards (e.g. staking ETH or ADA), but don’t want to lose status as an investment trust, you can use this safe harbor—provided you meet the requirements.
- **Trust agreement amendments**: trusts formed earlier must check trust instrument to ensure it permits staking; may need to amend the agreement so staking is authorized per the safe harbor. Timing matters due to the draft window. ([irs.gov](https://www.irs.gov/irb/2025-48_IRB?utm_source=openai))
- **Custodian roles matter**: if private keys are in third party controlled, not trust-directed, or mixed digital assets, safe harbor may not apply.
## Action Steps for Trusts & Advisors
- Review trust governing documents now: do they allow staking? Do they limit assets types? Are liquidity circumstances addressed?
- Confirm custodian arrangements: ensure custodian holds assets and keys with trustee oversight, and record-keeping reflects trust ownership even when staking.
- Plan for distribution frequency: at least quarterly in kind or converted to cash and paid out.
- Monitor whether trust’s interests are publicly traded and disclosures comply with SEC rules identified in safe harbor.
- Consult tax counsel: drafting amendments correctly; accounting for staking rewards; understanding potential income recognition timing.
## Why This Safe Harbor Matters
For trusts, staking digital assets has large potential upside—but uncertain tax treatment has deterred participation. This safe harbor provides **clarity and protection**, allowing trusts to stake profits without risking classification changes. This may foster more institutional participation in digital assets via trust structures.
**Category**: Entity Setup
**Tax Home**: US
**Author**: NomadicTax Research Team
**ReadTime**: 5-8 min