The rise in cryptocurrency has signaled a rise in non-fungible token (NFT) prominence as well. As NFTs gain traction, many who have purchased them wonder whether they can pass them on to their heirs.
Cryptoassets are unique assets that can be complicated to account for when it comes to estate planning. If you’re wondering how to leave these assets to beneficiaries, here’s a brief overview of what you need to know about including NFTs in your Will.
What is an NFT?
Non-fungible tokens are units of data stored on the Ethereum blockchain. They are not the same as blockchain cryptocurrencies, such as Bitcoin. NFTs represents ownership of a unique item. Such items include assets like art, collectibles, a song file, and even real estate. For instance, an NFT can tokenize assets that range from a GIF to a deed to a car.
An NFT can only have one owner at a time, and this ownership is managed through the unique ID and metadata that no other token can replicate. When you buy an NFT, you’re purchasing the code that represents an image. In other words, you’re buying the property rights to the asset, not the asset itself.
Can I include NFTs in my Will?
NFTs are valuable and unique assets, so if you own one, you’ll want to include it in your Will to ensure your heirs gain ownership of them. If you don’t specify how you want to distribute your NFTs, as with other cryptoassets, the probate court or IRS will decide whether it will be liquidated or sold off.
How to include NFTs in your Will or Trust
While you can include NFTs in your Will or Trust plan, it’s not as simple as “handing over” a physical asset. Like all digital assets, it’s important to develop and include a specific plan for leaving your NFTs to a beneficiary.
Since NFTs can only be accessed by a password or personal key, you need to make sure your executor can deliver this information to your beneficiary and specify in your Will or Trust how they can access it. Additionally, in your Will or Trust, explicitly state the plan for exactly how and when your beneficiaries should receive this password after you’ve passed, or have a Will or Trust indicate your intention to provide a separate, private document that can be found with your Will or Trust which lays out the specifics.
Talking to your estate planning attorney about digital assets like NFTs
Many laws surrounding NFTs and cryptoassets are still in the works, so it’s important to retain the services of an attorney who stays up to date with the latest estate planning laws and their tax implications.
To help your lawyer calculate your NFTs values, document the purchase price of each NFT in cryptocurrency and their fair market values when you purchased each of them. Transferring this password can be a complicated process and could potentially violate federal cybersecurity laws if it is not clear that your appointed representative has the authority to use your NFTs password on your estate’s behalf.
When planning an estate with NFTs, legal representatives should create a memo or letter that specifically details the type, location, and means of access to your digital NFTs. Password and PINs should be stored separately, though the memo/letter should indicate where they can be found.
To make sure your executor has the authority they need, include an express grant of permission in your Will so they can access your crypto exchange accounts. Many states, including Virginia, have adopted digital assets acts, and a properly drafted estate plan should include provisions related to those laws. Additionally, be sure to research and select the right cryptoasset exchange platform to store your NFTs, as this can further complicate the inheritance process for your beneficiaries.
Including digital assets in your Will can be complex. Luckily for Virginians, The Law Office of Patricia E. Tichenor, P.L.L.C., can help guide you. Contact us today for a free consultation about your estate planning needs.