Our modern age is seeing more of our assets being converted to a digital form. And, if you have a valuable asset, it’s always worth taking steps to ensure it ends up where and with whom you want, regardless of whether it exists in our physical or (expansive) digital world.
The NFT and crypto spaces are attracting many people to invest a decent amount of dosh trading digital assets. Research has found that a significant proportion of millennials and Gen Z’ers globally are keen to acquire NFTs for their investment portfolios. Naturally, questions of how these investments might be passed on in future years have begun to emerge in estate planning discussions.
Writing a Will is the best way to make a plan before you gracefully depart the physical world. It’s important to know what to include in your Will, and just as important to tailor your planning to specific assets that may be contained within it. There may be particular considerations to account for in your estate plan, especially when making arrangements for digital assets after death. So, let’s take a look at NFTs in this context.
What is an NFT?
NFTs, or Non-Fungible Tokens, involve similar digital technology as other crypto assets. A key difference is that they are not interchangeable in the same way as crypto coins or tokens. A unique digital signature is what makes them ‘non-fungible’. That means they are one-of-a-kind (like you, aww) and cannot be copied, substituted, subdivided or replaced with something else. Cryptocurrencies – like cash – on the other hand are fungible, meaning they can be traded or exchanged for one another.
NFTs can take the form of digital pictures of artworks, photos, video clips, audio clips, memes, GIFs, virtual avatars or items used in online games. They are typically purchased with Ethereum cryptocurrency, and so the assets sit on this specific currency’s blockchain.
Since blockchain is a distributed public ledger that records transactions, the NFT is really just a record or representation of the asset’s ownership. It simply references the intellectual property (rather than containing it) and holds information on where the intellectual property it represents can be found.
Accessing NFTs after death
Accessing NFTs is different from accessing other assets because ownership of the NFT is controlled through a password or distinct key. The NFT is owned and can be accessed by whoever has that private key, which is typically in the form of a long passcode or number of random words). If you had to track down an NFT, it’s not as simple as contacting a bank to inquire about accounts or conducting a title search to see what property might be in a loved one’s name. In other words, an executor would not be able to search for assert ownership from a registry.
If you do not have the key, then you may lose access to, and control of, the NFT. So, it’s not surprising that there have been many instances of known digital assets disappearing when their owner dies because nobody could find the secret code. NFTs can also only have one owner at a time.
Minimising loss of digital assets
Effective estate planning during an NFT owner’s lifetime will assist an executor to administer their estate in accordance with their wishes. Anyone undertaking this planning or making their Will should be aware of any changes in the digital space and the impact which technology is having on their assets. They should also take practical steps to help minimise the chances of assets being lost or overlooked by the executor.
To avoid NFTs being lost in the ether(eum), a testator can prepare a list of all their digital assets, which they can place with the Will in a safe and secure location. This may also include providing usernames, passwords and answers to secret questions.
However there should be the obvious consideration of the practical difficulties that may arise relating to the secure storage and privacy of that information. Changing passwords, adding or removing digital assets over time and losing the list are all potential variables that should also be factored in. Ultimately, it’s important to remember that access to the password or key to the NFT is crucial to the ownership of the asset.
Digital assets such as social media content, cryptocurrencies and non-fungible tokens have become increasingly valuable and widespread. This has led to the need for appropriate access planning to ensure the smooth transfer of these assets upon the death or incapacitation of a testator. The failure to create a plan to manage them means that the person’s digital assets could be overlooked if they are inaccessible by an executor or because the executor is unaware of the existence of the digital asset in the first place.
The full impacts of other technologies such as artificial intelligence and quantum computing also remain to be seen (there’s a lot going on, kids). In the meantime, be sure to embed a digital inheritance plan within your estate plan, discuss arrangements openly with an executor and make your wishes clear in your legal Will.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.