Have you thought about what might happen to your assets after you die? The thought process is an important step in estate planning (the process of deciding how you want your assets handled after your death). When you think about your assets, do your digital assets come to mind?
Jump ahead to these sections:
- What Happens to Your NFTs If You Didn’t Make a Plan Before You Die?
- How Can You Make a Plan for Your NFTs When You Die?
- How Can a Beneficiary or Executor Access a Loved One’s NFTs When They Die?
If you have not thought about your digital assets after death, now is a great time. A fairly new digital asset that you may have heard of in the news is an NFT. NFT stands for “non-fungible token.” According to Merriam-Webster, an NFT is “a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership.”
If that definition doesn’t help you, that’s okay. Below, we will look a little more at what NFTs are as well as discuss different considerations for NFTs in the estate planning process.
What Happens to Your NFTs If You Didn’t Make a Plan Before You Die?
Writing a will is the best way to make a plan before you die. With a will you can decide who gets what after you die. When you are making your end of life plans, it is important to know both how to write a will as well as what to include in your will. Of course, you do not have to write your will alone. You can always hire an estate planning attorney to help you with the process.
Even if you have a will, you may have failed to plan for certain assets. This includes NFTs. So what happens if you fail to make a plan for your NFTs before you die?
Understanding NFTs
Before discussing what happens to NFTs, it is important to understand NFTs. By definition, NFTs can represent any number of digital files such as artwork, photos, gaming tokens, and/or videos. NFTs are typically only purchased with Ethereum cryptocurrency, as they exist on this specific currency’s blockchain (like a giant ledger of receipts that record transactions).
The NFT does not actually have the intellectual property, as it simply references the intellectual property and contains information on where you can find the intellectual property it represents. You control your ownership of the NFT through a password or a distinct key. If you do not have the key, then you may lose access to and control of the NFT.
NFTs after death
During your life, you have control over your NFT. You most likely know what NFTs you possess and how to access the NFTs. However, what happens to your NFTs if you don't make a plan before you die? It depends.
Dealing with NFTs can be complicated. Especially if you fail to make a plan for your NFTs.
Do you own NFTs? If you answered yes, does anyone else know that you own NFTs? In many situations, a person may own NFTs that nobody knows about. If nobody knows you own digital assets and no additional steps are taken to identify the digital assets after your death, then they may be lost forever. The manner in which NFTs are traded can make discovery difficult.
Furthermore, even if NFTs are identified, without the password or distinct key, it may be impossible to access the NFT. So in some cases, your failure to make a plan for your NFTs may mean that nothing can or ever will happen with them.
If your NFTs are known and accessible but are not provided for in your estate plan, then the court may decide how the asset is to be divided and allocated. Access to the password or key is crucial to the ownership and disposition of the asset.
How Can You Make a Plan for Your NFTs When You Die?
If you own NFTs or are planning on owning NFTs, then you may be wondering how you can protect the asset after death. The best way to protect your NFTs after death is to make a plan. When you are thinking about planning for after death, you should be thinking about a will. Just like your other assets, you will most likely include your NFTs in your will.
Keep in mind that if a will is filed for probate, it becomes public record. Information that is part of the public record is accessible to the public. This means that you will not include all of your NFT information in your will.
The following are steps you can take to make a plan for your NFTs when you die.
1. Consult an attorney
The legal landscape involving digital assets is rapidly changing. If you are trying to create a plan for your NFTs, you should consult an estate planning attorney who works with NFTs and other digital assets such as cryptocurrencies. They will understand how the law may apply to your assets and will be able to provide you with advice on what plan best suits your needs.
If you are drafting a will then you may be able to name a digital executor. A digital executor may be named in addition to your regular executor. A digital executor assists in accessing your digital assets after your death. Keep in mind that not all states recognize digital executors.
2. Identify your NFTs
An attorney will most likely ask you about your NFTs. If you already own NFTs, then you will need to identify the NFTs that you currently own. A simple way of identifying your NFTs is by making a document simply listing these NFTs. The list can include a description of the token as well as where the token can be found. You may also want to document the purchase price of the NFT.
You should maintain your list and update it as you buy and/or sell NFTs. You should also let your executor or other trusted person know how to access the list.
3. State your intentions for your NFTs
After you have identified your NFTs, the next step is deciding what you want to happen with your NFTs after you die. This most likely will become a part of your will where you specify who gets what.
It is important to note that a will is not the only way to dispose of your NFTs. Your attorney may advise you of other options for transferring your asset(s) to a loved one.
4. Protect access to your NFTs
In order to access your NFT, a person will need to know where to access the NFT and how to access the NFT. You may recall that your ownership control of your NFT is exercised through a password or a distinct key.
It is important that you protect your password or key. However, it is also important that the appropriate person know how to access your password or key after your death. Access to and knowledge of the password or key helps to ensure that ownership of the asset can be transferred.
You should store this information in a secure location. Some individuals use a password manager. Other individuals write the password or key on a sheet of paper and store it in a safety deposit box. Regardless of how you store the information, you should let the appropriate person know where the information is located.
Your chosen person should also know how to access the information. For example, if you store the key in a safety deposit box, make sure that they know where the safety deposit box key is located. You should also make sure that they will be able to access the safety deposit box upon your death.
5. Maintain your NFT information
As time progresses, you may buy and/or sell NFTs. When you complete these transactions, you should update your NFT list.
Over time you may also update passwords or change how and where you store private information. As you make these changes, be sure to inform your executor or other trusted person.
How Can a Beneficiary or Executor Access a Loved One’s NFTs When They Die?
Losing a loved one is difficult. So is navigating what to do when someone dies. Handling financial and legal matters can add to the difficulties accompanying a loss.
A beneficiary or executor may face additional challenges when trying to access a loved one’s NFTs. Accessing NFTs is different from accessing other assets. After a loved one’s death, a beneficiary or executor may be able to contact a bank to inquire about their accounts or conduct a title search to see what property may be in their name. However, these options are not available for NFTs.
NFTs are traded in a decentralized market like OpenSea. This means that there is not a central governing body. A beneficiary or executor would not be able to search for or assert ownership from a registry. Essentially, the NFT is owned by whoever has the password or key.
If a beneficiary or executor wishes to access a loved one’s NFTs when they die, they should follow the steps below.
1. Contact an attorney
A beneficiary or executor does not actually have to contact an attorney to access NFTs when a loved one dies. However, contacting an attorney can be an essential and necessary step to properly handling NFTs and other digital assets.
They will most likely need to contact a probate attorney with their questions. The probate attorney will advise them on how to access and handle the NFTs.
As this is a relatively new area of law, the probate attorney may also refer them to an attorney who specializes in digital assets. Using an attorney who is knowledgeable in this area can be beneficial for numerous reasons.
First, the attorney will be able to answer any questions they have regarding NFTs. The attorney may also be able to advise them on how to identify any potential NFTs that their loved one omitted. Additionally, the attorney will be able to advise them on how to value and/or sell the NFTs.
A knowledgeable and experienced attorney can ensure that the process is done thoroughly and efficiently. They may also be able to identify issues that are pertinent to the estate.
2. Follow the NFT plan
If you have been following along then you probably realize the importance of creating an NFT plan. An NFT plan ensures that everyone knows what digital assets exist, how to access those assets, and who is entitled to the assets.
If the deceased created an NFT plan, then the beneficiary or executor simply needs to follow the NFT plan. They will already know what NFT exists, where they are located, and how to access them.
3. If no NFT plan exists then they will have to...
If the deceased did not create an NFT plan then the situation may become a bit more challenging. The next steps are essentially the same as those taken while creating an NFT plan. The beneficiary or executor will need to contact an attorney for assistance and will try to identify the NFTs owned by the deceased.
One of the most crucial tasks of the beneficiary or executor will be locating the NFT password or key. There have been many stories of digital assets disappearing when their owner dies because nobody could find the password or key.
Communication is Key
When handling NFTs, or any other digital asset, communication is the key. Make sure your executor or loved ones know that you own NFTs and how to access the NFTs upon your death.
If your NFTs are extremely valuable then you may worry about sharing access information. You do not have to share all of your private information with your executor or loved ones. You only need to make sure that someone knows how and where to access that information after you die. Communication (and the actual key) is the key to handling NFTs after you die.