Trustee-beneficiary dynamics: How to handle the headwinds of digital assets

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Family office trustees face a new challenge as the younger generations increasingly seek exposure to digital assets and cryptocurrencies. This insight shares a comprehensive checklist of ten guidelines to help them in their approach to this rapidly evolving sector.
family office digital assets

What you need to know

  • Family office trustees should embark on their digital assets journey with a systematic and structured approach. Time well spent on the front-end yields a multiple in back-end ROI.
  • Hiring an experienced team with knowledge of digital assets to work alongside legal and tax professionals is crucial for a successful investment strategy.
  • Risk assessment and clear investment goals are essential elements of a comprehensive checklist for family offices looking to invest in digital assets.

Digital Assets Published on Simple February 7, 2024

As we stand on the precipice of the next Bitcoin halving, the crypto sphere is buzzing with anticipation. This event, occurring approximately every four years, has historically been a catalyst for excitement and transformation in the digital assets realm. Trustees, entrusted with safeguarding and growing family wealth, are undoubtedly facing a changing landscape.

The journey bears a remarkable resemblance to the meticulous preparations undertaken by pilots before soaring into the skies. Just as a seasoned pilot performs a series of vital checks to ensure the safety and efficiency of a flight, managing substantial wealth in the world of cryptocurrencies and blockchain calls for a structured and strategic approach. In this comprehensive guide, Benaiah Capital presents a purposefully crafted checklist for family offices with substantial financial portfolios, mirroring the meticulous preflight checklist executed by pilots before embarking on a journey.

As we depart from the land of speculation and doubt, each step is a vital waypoint in the digital asset frontier—a journey that unlocks new horizons in the world of finance. Seasoned knowledge is your steadfast co-pilot to help navigate the path to fostering trust and goodwill with your beneficiaries. Using this guide as a checklist, you’ll be able to sit back, relax, and enjoy the flight, knowing you’re fulfilling your fiduciary duties with confidence and competence.

1. The Team

Assemble the team that’s going to be overseeing the time and capital investment into this new sector. Hiring the right firm probably sounds obvious, but finding an individual or two that will sit on your advisory team and can check as many of the following boxes as possible below is paramount. Find a firm that’s experienced and ask them about the tuition they’ve paid. The greater their ability to educate you, the greater chance you’ll have at successfully navigating the digital asset market.

This team needs to be able to work alongside your legal and tax professional along with your CIO and advise on all of the strategies that mirror traditional finance to complement your current wealth management portfolio. With the opportunity for substantially higher returns, lies greater risk so experience is a must. The more experience your team has, the safer your flight is going to be.

2. Education and research

If you’re successful in finding the right firm with experience and knowledge of digital assets and the Web3 evolution, they’ll also play a significant role in the education around the risk and opportunities in the sector. An experienced team will create a comfortable environment where learning about cryptocurrency becomes more of a conversation. Encourage all your team members to participate in comprehensive education on the digital asset market, blockchain technology, and the buildout of Web3 technologies. Create a calendar for electronic and/or in-person education sessions and foster an environment for continuous learning.

3. Define and over-communicate your goals and objectives

Establishing clear investment goals, such as wealth preservation, capital appreciation or diversification, will allow your digital asset advisors to tailor the family’s investment solutions to fit the short, medium and long-term objectives. Be specific about the outcomes you aim to achieve and put together a detailed plan for assessing investment strategies and adjusting to market trends.

4. Tax planning and legal framework

Developing a plan to capitalise on tax-efficient strategies in this space can significantly improve your net return. Your advisors should be able to assist with tax planning along with the guidance and consultation from your tax professionals. As with any evolving industry, laws can change at a more rapid pace, so make sure to seek legal counsel to better understand and comply with local and international regulations governing digital asset investments. Legal experts will ensure compliance and help to establish a governance framework for decision-making, transparency, and accountability.

5. Risk assessment

Assess your risk tolerance and appetite for digital asset investments and develop strategies to align accordingly. With every investment strategy, there are going to be opportunities to mitigate potential losses. Conduct thorough due diligence when evaluating digital asset investments by assessing the project team members, technology, the use case behind each asset, and who has invested capital in the project. Create a comprehensive risk management plan to address market volatility and unforeseen events. Each strategy and allocation should include a granular risk assessment framework.

6. Assemble a strategy, diversification and security committee

Depending on the size of your team, you may elect to have a committee that will oversee the management and execution of the portfolio that’s tailored to the communicated goals. This committee will oversee the investments and strategies, develop a diversified digital asset portfolio to spread risk across different assets and implement a robust custody solution for the security of the assets. The committee will define clear criteria for selecting digital assets to consider for investment, including technology, use case, project team, project investors, market analysis and potential.

7. Capital allocation, rebalance and exit

Establishing the allocation of capital towards digital asset investments is going to be one of the first steps. But, establishing guidelines for reallocation, rebalancing, profit crystallisation and exiting positions are also important duties. The volatility of the digital asset market tends to require a more actively managed portfolio, so reallocation, rebalance and exit guidelines may need to be established depending on the particular strategies involved. Setting these on the front-end with the ability to adjust down the road will help significantly in keeping the team grounded on its investments. Setting up monthly, quarterly, and annual evaluation periods for the investments is recommended. And engaging with a qualified custodian who can adhere to your level of desired change is important. The advisory firm you choose should be able to play a significant role in the leadership and organisation of this.

8. Security measures

You’ve likely heard this, but they say it’s not an “if”, but “when”, when it comes to a security breach or hack. Some carry significant potential for damage and loss. If you haven’t done so already, you should develop a policy and procedures handbook addressing best practices in the handling of cyber security operations and functions of digital assets across all platforms. Offer regular training sessions to family and staff members on the regulation, compliance, and contents of the handbook related to best practices in cryptocurrency and blockchain technology. Education is so important when it comes to the prevention of these attacks.

9. Reporting, monitoring and compliance audit

Establish a system or hire an administrator to track digital asset holdings and their performance. This will likely be a critical piece to some of your tax strategies as well. Regularly review and assess the portfolio’s progress against predefined goals and benchmarks and have an outside audit team in place to ensure proof of assets. This outside audit team should also conduct periodic compliance audits to ensure ongoing adherence to regulations and best practices.

10. Start small and give thanks

Understanding the relativity of that statement. Investing in assets that have the volatility that cryptocurrency can have requires a certain risk tolerance. Start small to experience a greater understanding of how the volatility can swing with greater variance than the traditional market. You’ll probably wish you would have invested more in the beginning from an ROI standpoint. But the process and journey will be much more pleasant with a lesser initial investment to get your feet wet. And, finally, Denzel Washington once said, “giving is the most selfish thing you can do because of how good it feels”. With the substantial yield opportunity that this sector provides, there’s a likely chance of incredible gains. Consider taking Denzel’s advice and plan to be selfish – we think you’ll be glad you did.

About the Authors

Ben Wiener

Ben Wiener

Digital Assets & Trust Structures

The speed at which the digital asset market is about to move and the impact it will have will resemble what we witnessed with the internet. Building partnerships with experienced advisors can provide valuable insights and help navigate this evolving landscape effectively.

Connect with Ben Wiener

Written in partnership with

Benaiah Capital

Benaiah Capital

Digital Assets & Currencies

Benaiah Capital is a boutique investment firm founded in 2021 that is focused exclusively on wealth management strategies in the digital asset market.

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