¶ 1601
Overview
Scope of the chapter. This chapter addresses the liability of a fiduciary who holds or controls digital assets for another when those assets are lost, stolen, frozen, sold at the wrong time, retained too long or placed at risk in a lending or staking arrangement. The fiduciaries considered are trustees, personal representatives, agents acting under powers of attorney, conservators and guardians, and the custodians and other agents a fiduciary engages. The chapter identifies the sources of the duty that is said to have been breached, the theories of breach that recur in digital-asset administration, the measure of the loss when the asset is volatile, the protection a trust instrument may give through an exculpation clause, the fiduciary's rights to indemnity and insurance, the use of accountings, consents and petitions for instructions to settle exposure before a loss occurs, and the special problems presented by lost keys, inaccessible holdings and theft. It closes with the limitation periods that cut off claims, the liability of the lawyer who drafts for digital assets, and a drafting and practice checklist.
Relationship to earlier chapters. The duties themselves are set out in earlier chapters. The prudent investor standard, the duty to diversify and the duty to take control of and protect trust property as they apply to digital assets are examined in ch. 14. The directed-trust statutes that divide responsibility between a trustee and an investment or custody adviser are examined in ch. 15. The custody models through which a fiduciary may hold keys, and the institutions that may hold them on the fiduciary's behalf, are examined in chs. 9 and 11. Staking and lending, and the transfer of title that some lending arrangements entail, are examined in ch. 12. This chapter assumes those discussions and asks what follows when a duty is breached, how the loss is valued, and what the instrument and the courts permit a fiduciary to do to limit the exposure.
Why digital assets change the analysis. Three characteristics of digital assets alter the familiar law of fiduciary liability. First, control of a native token on a public ledger usually depends on the possession of a private key or a share of one, so the duty to take control of and protect property becomes a duty of operational security. A fiduciary who loses a key, or who allows a key to be stolen, may cause a total and irreversible loss. See ch. 2 ¶ 230. Second, many digital assets are volatile. The value of a holding can change by a large fraction within weeks, so the choice among valuation dates (the date of breach, the date the asset should have been sold, the highest value within a reasonable time, or the date of judgment) can determine whether damages are modest or very large. Third, the instruments under which most fiduciaries serve were written before digital assets were common. Exculpation clauses, retention clauses and investment powers drafted for securities portfolios must be read against assets their drafters did not have in mind.
The statutory texts used. The Uniform Trust Code (UTC) has been enacted, with variations, in a majority of states. Where this chapter quotes trust-code language, it quotes an enacted text: the Florida Trust Code, Fla. Stat. ch. 736, whose remedies, exculpation, consent and limitation provisions follow the uniform act's structure with stated variations, together with the Florida prudent investor rule, Fla. Stat. § 518.11. Delaware's fiduciary statutes, 12 Del. C. chs. 33 and 35, and the Texas Trust Code are used where they depart from the uniform model in ways that matter to digital-asset planning. The corresponding UTC section is given in the text for readers in other enacting states, who should confirm their own state's version.
Organization. Paragraph 1610 identifies who may be liable and under what law. Paragraph 1620 sets out the theories of breach. Paragraph 1630 addresses the measure of the loss. Paragraph 1640 examines exculpation clauses. Paragraph 1650 addresses indemnity, insurance and reliance. Paragraph 1660 addresses accountings, beneficiary consent and petitions for instructions. Paragraph 1670 addresses lost keys and inaccessible assets. Paragraph 1680 addresses theft, recovery duties, limitation periods and the liability of the drafting lawyer. Paragraph 1690 collects drafting points and a checklist.