AI Cyberattacks and Asset Protection Trusts: Who Bears the Loss?

Asset protection trusts (domestic and offshore) were designed to keep assets away from creditors.

In 2026, a different question is becoming just as important: can the trustee protect those assets from cybercriminals?

If a criminal gains control of the trust’s bank, brokerage, or custody account, who bears the loss? Does the trustee absorb that risk, or do the beneficiaries?

These issues are best addressed in the trust agreement from the outset. Waiting for a judge or arbitrator to determine responsibility after trust assets have been compromised is a far less desirable outcome.

Why the Question Matters Now

The threat to trust accounts is no longer theoretical. The federal agencies that track the evolving AI risks are measuring the timeline in months.

On June 22, 2026, the Five Eyes cyber security agencies, led by the National Security Agency (“NSA”), warned that:

“Frontier AI models are anticipated to exceed current industry expectations, fundamentally transforming both offensive and defensive cyber capabilities. The timeline is not years, it is months. In this environment, cyber resilience is integral to advancing business continuity, market confidence, and long-term value” ([1]). [emphasis added]

The same statement calls cyber risk “a core business risk and leadership responsibility,” and a trustee holding a family’s liquid wealth is exactly the kind of leader it is addressing ([1]).

The Federal Bureau of Investigation (“FBI”) Internet Crime Complaint Center (IC3) recorded $20.877 billion in reported losses for 2025, including $3,046,598,558 from business email compromise and roughly 4,700 account-takeover complaints totaling $359.7 million ([2]).

Family offices and investment managers are exposed for a structural reason. Form ADV (including the adviser’s business, ownership, clients ) is published on the Securities and Exchange Commission’s (“SEC”) Investment Adviser Public Disclosure website. This is a public domain of who manages significant wealth ([14]).

What New York and Delaware Law Say

Neither New York nor Delaware imposes a specific statutory duty on trustee to safeguard trust accounts against cyberattack or account takeover. Both rely on general prudence standards that written before frontier AI existed.

New York. The Estates, Powers and Trusts Law (EPTL) § 11-2.3 requires a trustee to “exercise reasonable care, skill and caution” as “a prudent investor would,” judged by “facts and circumstances prevailing at the time of the decision or action” ([3]).

The section appears to apply to investments held on or after January 1, 1995. It does not mention anything about cybersecurity standards. It just says that: “A trustee shall exercise reasonable care, skill and caution to make and implement investment and management decisions as a prudent
investor would for the entire portfolio…” ([3])

Banking Law § 100 lists a trust company’s fiduciary powers without imposing any affirmative safeguarding duty ([4]).

In our arbitration practice, a trustee has taken the position that under the NY Banking Law § 100, a trustee does not have an express duty to safeguard trust assets against a foreseeable account takeover.

New York does, however, void any attempt to exonerate an inter vivos or testamentary trustee “from liability for failure to exercise reasonable care, diligence and prudence” ([5]). But the question becomes – what’s reasonable in the agentic AI era?

Delaware. Title 12, § 3302(a) requires a fiduciary to act “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use” ([6]).

The section’s history note runs from the Delaware Code of 1915 through later amendments. None of the amendments added anything relating to cybersecurity, account security, or safeguarding ([6]). A prudent-person standard that was initially drafted in 1915 now has to be applied to AI cyber threats the NSA says is measured in months.

Delaware also lets the governing instrument “expand, restrict, eliminate, or otherwise vary” a fiduciary’s “standard of care, rights of indemnification and liability,” with a floor only at “wilful misconduct” ([7]).

A settlor who signs a trust-company form without reading that clause may have waived the right to recover a negligent cyber loss.

Jurisdiction	Standard of care	May the instrument reduce it?	Express cyber or safeguarding duty?
New York	“reasonable care, skill and caution” as a “prudent investor” ([3])	Not below reasonable care; exoneration void ([5])	None found ([3], [4])
Delaware	“care, skill, prudence and diligence under the circumstances then prevailing” ([6])	Yes, down to a wilful-misconduct floor ([7])	None found, including in the Qualified Dispositions in Trust Act ([6], [9])

Regulation Is Not Private Risk Allocation

A regulated trustee’s cybersecurity rules protect the institution and its regulator, not the settlor’s trust agreement. New York’s 23 NYCRR Part 500 requires every “covered entity” licensed under the Banking Law to maintain a cybersecurity program and use multi-factor authentication ([11]).

Those duties apply to the NY Department of Financial Services (“NYDFS”), not to a beneficiary, and an individual or family.

As a matter of fact, grantor, beneficiary or family can’t even asset a claim against a trustee based on alleged violation of NYDFS cybersecurity standards. Part 500 does not provide a private right of action.

A separate question is what cybersecurity requirements apply to a foreign trustee. The answer will depend on the laws and regulatory framework of the trustee’s jurisdiction. This is is one of many considerations for those evaluating offshore asset protection trusts.

The bank owes less than clients expect. Under Uniform Commercial Code (UCC) § 4A-202(b), an unauthorized wire is effective as the customer’s order if the bank’s security procedure was “a commercially reasonable method of providing security against unauthorized payment orders” and was followed in good faith ([10]).

The trustee, not the bank, is often the first and last line of defense.

A Public Yardstick for Trustee Cybersecurity

Settlors do not need to be technologists to measure a trustee.

The National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (CSF) 2.0 organizes cybersecurity outcomes into six functions, “GOVERN, IDENTIFY, PROTECT, DETECT, RESPOND, and RECOVER,” and is “designed to be used by organizations of all sizes and sectors” ([12]).

The Cybersecurity and Infrastructure Security Agency (“CISA”) ranks multi-factor authentication types from strongest to weakest, with phishing-resistant MFA a distinct category from text-message codes ([13]).

Before signing, a settlor should ask the prospective trustee, in writing:

1. Who bears the loss if an account is taken over despite your controls?
2. How much cybersecurity insurance does the trustee have?
3. Which NIST CSF 2.0 functions does your program map to ([12])?
4. Is phishing-resistant MFA required for everyone who can move trust funds ([13])?
5. How is a distribution request verified out of band before a wire is released?

Putting It in the Trust Agreement

If the statute is silent, then the trust agreement should define how risk of risk of loss is allocated.

Depending on the jurisdiction, a trust agreement could impose an express duty on the trustee to safeguard accounts, credentials, and digital assets. It could also place the risk of loss arising from account takeovers to the trustee (which is a reasonable approach given today’s threat environment).

It is no longer unusual for a trust to name a cybersecurity adviser together the investment adviser and administrative trustee (especially true where cryptocurrency is part of the estate).

Delaware’s directed-trust statute allows the instrument to give a person authority to direct or veto a fiduciary’s “investment decisions, distribution decisions or other decision of the fiduciary” ([8]).

The instrument should also say where a dispute will be heard.

Under the Federal Arbitration Act, a written arbitration provision in a contract involving commerce is “valid, irrevocable, and enforceable” ([15]). Settlors commonly designate American Arbitration Association (AAA) or JAMS arbitration in a U.S. venue so that a negligence claim is not litigated first in the trustee’s home forum.

Offshore Trusts Raise the Stakes

An offshore trustee can be excellent at creditor protection, but still be unexamined on AI cyber risks.

A Cook Islands trust is governed by the International Trusts Act 1984 and its amendments through 2013, published by the Cook Islands Financial Supervisory Commission ([18]). Notably, U.S. persons who fund foreign trusts must report those transactions on Internal Revenue Service (IRS) Form 3520 ([17]).

We believe many foreign trustees are still working out what the Five Eyes statement means for their business; that’s provided they’re even ware of the NSA report.

The client’s job is to know (before funding the trust) what legal mechanism operate between settlor and trustee if something goes wrong, because no one wants to litigate a negligence claim in Rarotonga.

Existing Trusts Are Not Frozen

An irrevocable trust can often be updated.

New York’s decanting statute, EPTL § 10-6.6, allows an authorized trustee to appoint principal to a new trust for the same beneficiaries ([16]).

Depending on the circumstances, decanting could be used to update a legacy trust by adding specific cybersecurity provisions and allocating the risk of cyber-related losses.

If your asset protection trust is governed by the laws of Wyoming, Delaware, South Dakota, or another jurisdiction, we can help evaluate if decanting is appropriate. Our team, which includes retired IC3 cybercrime specialists, can help structure and transfer trust assets to a new trust designed to address modern cybersecurity risks (including agentic AI cyber threats).

Contact Us

To discuss a domestic or offshore asset protection trust, contact Max Dilendorf at +1 212 457 9797 or info@dilendorf.com.

This article is for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship with Dilendorf Law Firm. Attorney Advertising.