A nonfungible token, or NFT, is a digital form of art that is embedded within a smart contract. NFTs can be pictures, videos, virtual collectibles, documents, music, and/or other files, sometimes with additional benefits included as an incentive to purchase that particular NFT. Each NFT is unique and when owning an NFT, one owns all of the rights to that asset. NFTs, like cryptocurrencies, are held in wallets protected by blockchain technology.
When it comes to estate planning, NFTs can be passed down through a will or a trust. In order for a beneficiary to acquire the NFT, the grantor must be sure to provide them with their password and their personal key to access the wallet. Additionally, to prevent the risk of NFT(s) being sold off or liquidated, it is important for the grantor to explicitly state when and how their NFT(s) should be transferred.
We make it standard to ask clients if they own or intend to own an NFT and what their uses of owning the NFT are in order to best incorporate them into the estate plan. NFT owners should attentively keep track of how much they paid for each NFT and the amount they earn when they sell it, as the sale can result in capital gains and losses. It is often beneficial for individuals to transfer NFTs through a trust in order to exclude the digital asset from being included in the beneficiary’s taxable estate and avoid the probate process that would be necessitated if transferred through a will.
At Lara Sass & Associates, we have the resources and experience necessary to protect NFTs, cryptocurrencies, and other digital assets within your estate plan.