What to Know about Estate Planning for Non-Fungible Tokens
As digital assets continue to evolve, estate planning must adapt to ensure these assets are properly accounted for. Non-fungible tokens (NFTs), unique digital assets stored on blockchain networks, have gained attention for their potential value and ownership complexities. If you own NFTs, it is crucial to include them in your estate plan to ensure your loved ones can manage or inherit them seamlessly.
What Are Non-Fungible Tokens (NFTs)?
NFTs are digital tokens that represent ownership of unique assets such as artwork, music, collectibles, and even real estate in virtual worlds. Unlike cryptocurrencies like Bitcoin, which are fungible and interchangeable, NFTs are one-of-a-kind and cannot be exchanged for an identical asset. Because they exist on a blockchain, transferring ownership requires specific access credentials, making proper estate planning essential.
The Challenges of Including NFTs in an Estate Plan
Traditional estate planning primarily deals with physical assets like real estate and bank accounts. Digital assets like NFTs introduce several challenges:
- Access and Security – Without proper documentation of private keys and digital wallets, heirs may be unable to access NFTs.
- Legal Uncertainty – The law around digital assets is still developing, meaning fiduciaries may not have clear authority over these assets.
- Tax Implications – NFTs may be subject to capital gains taxes upon transfer, and their fluctuating value can complicate estate valuations.
- Smart Contracts and Licensing – Some NFTs come with smart contracts that dictate resale royalties or usage rights, which must be considered when passing them to heirs.
Steps to Ensure Your NFTs Are Protected
If you own NFTs, taking proactive steps in your estate planning is vital. Here are some key considerations:
1. Document Your Digital Assets
NFTs, like other digital assets, require clear documentation. Maintain a secure, up-to-date record of:
- NFT holdings
- Digital wallets and associated passwords
- Private keys and security phrases
- Marketplaces where NFTs are stored (e.g., OpenSea, Rarible, SuperRare)
This information should be stored securely, such as in a password manager or offline document, and made accessible to a trusted executor.
2. Appoint a Knowledgeable Executor
Choosing an executor or fiduciary with experience in handling digital assets is crucial. This person should understand blockchain technology or be willing to consult with professionals to ensure a smooth transfer of NFTs in accordance with your wishes.
3. Address NFTs in Your Estate Plan
Your estate planning documents should explicitly mention NFTs and include:
- Provisions in your will or trust specifying who will inherit them
- Instructions for accessing and managing the assets
- Contingency plans in case of lost private keys or wallet access issues
Since Massachusetts law, including Northborough’s jurisdiction, is still evolving regarding digital assets, working with an estate planning attorney experienced in emerging technologies is advisable.
4. Consider Tax and Legal Implications
The IRS has increased its scrutiny of digital assets, requiring taxpayers to disclose cryptocurrency and NFT transactions. For estate planning purposes:
- NFTs may be subject to estate taxes depending on their value at the time of inheritance.
- If sold by heirs, NFTs could be subject to capital gains tax based on their appreciated value.
- If donating an NFT to charity, the IRS may require a qualified appraisal to determine tax deductions.
Proper documentation and valuation strategies can help minimize tax burdens and ensure compliance with applicable laws.
The Importance of Working with an Estate Planning Attorney
Given the complexities of NFT ownership and estate planning, working with an experienced attorney can provide peace of mind. At Kristine Romano Law, we help clients in Northborough and Natick navigate estate planning challenges, ensuring digital assets like NFTs are properly addressed. Our team offers personalized guidance to safeguard your assets and protect your loved ones’ future.
Create a Comprehensive Estate Plan to Protect NFTs
If you own NFTs, now is the time to integrate them into your estate plan. Without clear instructions, your digital assets could be lost or inaccessible to your heirs. Contact Kristine Romano Law to schedule a consultation and develop a comprehensive estate plan that secures your NFT investments and ensures a smooth transition for your loved ones.
References: Business Insider (Jan. 21, 2025) "What are NFTs? A beginner's guide to non-fungible tokens" and The Northern Trust Institute "What Are NFTs? Understand Estate Planning Challenges"
