What Are Non-Fungible Tokens?
Recently, Non-Fungible Tokens (“NFTs”), have become a topic of increasing popularity. Non-fungible tokens are one-of-a-kind digital assets that exist within crypto blockchains like Ethereum or Binance Smart Chain. They are purchased on NFT marketplaces like OpenSea, Rarible, and Nifty Gateway, to name a few. Each NFT has a set of specific identification codes and metadata that makes it unique. NFTs can code for almost any virtual asset, including art, songs, or video clips. Blockchains can even be used to attach cryptographically secure NFTs to tangible products. NFTs do not give the owner exclusive rights to use or reproduce the asset, but they do certify ownership of the asset, and this certification can be sold or transferred.
Blockchain technology makes it almost impossible to forge records, ensuring that the purchaser of an NFT holds a token representing sole ownership of the original work that he or she has purchased. Because each NFT is unique, they cannot be traded for equal value like cryptocurrency or traditional forms of currency are traded. NFTs are more similar to original authentic collectibles, but they exist within the world of crypto. Due to both a recent increased demand for NFTs and their distinctive properties, more and more individuals are seeking information about estate plans that protect and provide for their NFTs.
Special Considerations for NFTs in Estate Planning
- Providing Access: In the overwhelming majority of instances, NFTs can only be accessed using a password or a personal key. In order to access your NFTs, this information must be passed on to future beneficiaries. Individuals seeking to pass on cryptocurrency, NFTs, and other online assets should consider creating a “digital legacy” to accurately describe important accounts and store information about how to access the assets within these accounts. Digital legacies can be created by backing up information securely using cloud data storage providers or by using apps created specifically for planning digital legacies. This information should be kept private, but your estate plan will need to clearly outline the particulars of your digital legacy in order to effectively transfer your digital assets, including NFTs.
- What Information and When: You should also consider what information you would like to make available, as a blanket authorization of access to your digital assets may not be suitable for your estate plan. It is recommended that you use careful consideration in deciding which digital assets you would like to make accessible to your fiduciaries. When adding NFTs to an estate plan, further protect your digital assets from being sold or liquidated by explicitly outlining how and when the NFT should be transferred to beneficiaries.
- Estate Planning Instruments: Although it is possible to plan for digital assets in a will, individuals who own NFTs should consider the benefits of planning for these assets in a trust. By transferring your NFTs into a trust rather than transferring them outright via a will, you can avoid the probate process. Your NFT assets will not be reachable by creditors or divorcing spouses of your beneficaries, and the NFTs would not be included in the beneficiary’s taxable estate upon his or her death. Offshore trust provide particularly strong asset protection in favorable legal jurisdictions that exist outside the United States. Offshore trusts provide significant tax advantages, including the benefit that trust income is treated as ordinary income for U.S. tax purposes. Cook Islands Asset Protection Trusts are the world’s leading offshore, international trust. Cook Islands Trusts provide financial privacy, and they protect trust property from unforeseeable economic and political forces. Cook Islands Trusts also shelter trust property from judgments that may arise from lawsuits in the U.S., and they create barriers to potentially harmful litigation. Cook Islands Trusts offer a promising vehicle for protection of digital assets like NFTs, due to the variety and flexibility of trust structures available and the fact that all business transactions can be conducted electronically.
- The Novelty of NFTs: Digital assets are still relatively new, and they are evolving rapidly. Blockchain technology is secure, but it is designed to prevent forgery, not necessarily theft. Applications built on or around blockchain technology are not as inherently secure as the blockchain technology itself. Recently, users of certain digital art marketplaces have reported that thousands of dollars of NFT art were stolen from their accounts. If a hacker steals an NFT and resells it, the blockchain will irreversibly record the sale. Other issues arising from NFTs include fraudulently created NFTs, false chains of ownership for NFTs, and URL issues tied to NFTs that make the NFTs vulnerable to vanishing unexpectedly. Laws surrounding NFTs and their transference will continue to fluctuate in the foreseeable future. Accounting for NFTs in an estate plan requires continued attention to the developments in NFT technology, NFT security, and the laws surrounding the transfer of digital assets.
Contact Mile High Estate Planning to Learn More About Planning for NFT Assets
Creating an estate and asset protection plan that incorporates your NFTs is a complicated and intricate process. Consulting an experienced attorney with a deep understanding of digital assets and asset protection is crucial to ensure that your property is safeguarded and adequately protected. Mile High Estate Planning is comprised of attorneys who have experience in cryptocurrencies, digital wallets and exchanges, digital investment landscapes, and of course, estate planning and asset protection. Mile High Estate Planning would be happy to assist you in planning for all of your digital assets and your physical assets.
If you would like to learn more about estate planning or asset protection for NFTs, contact us today by email at Info@MileHighEstatePlanning.com or by phone at 833-Ask-Blake. Our skilled attorneys will begin with a free initial consultation, and if you later decide to hire us, we would be happy to take payment in several different forms of cryptocurrency.
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