With the rise of NFTs, many have yet to consider how to include digital assets in their estate plans or what is needed for them to do so. In this article, our Business & Family Solutions team at Lighthouse Canton provides an overview of this new digital asset and considerations for succession planning when it comes to digital assets.
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While the world was grappling with the continuation of COVID-19 through 2021, an asset class called “NFT” was busy creating a name for itself with the younger generation. What was alarming was the speed at which it gained popularity not just with the affluent but also the masses.
Everyone wanted to own a piece of an NFT, whether bought or created. NFTs resulted in the creation of a new millionaire club which included unlikely college students whose images were snapped up by affluent investors. The thrill of being an NFT owner and calling yourself a digital collector was a trophy to show off to others.
What is an NFT?
The question our clients were asking after buying an NFT was, “How do I incorporate this into my estate plan?” Before we get into the estate planning of NFTs, let us understand what exactly an NFT is.
NF in NFT stands for Non-Fungible, which means something that cannot be replaced with anything else, even if it holds equal value. In essence, a Non-Fungible Token is something unique, it is one-of-a-kind.
NFTs are not necessarily tangible. They are not like a fine piece of collectible art, in the sense that we all (used to) think of collectible art, at least.
Let us explain this further: One $10 bill can be exchanged for two $5 bills, and the value of what you are holding (in either option) is equal, even after the exchange. An NFT is not comparable to anything else, therefore it cannot be traded for something of equal value. You with us, so far?
This is where it starts to get interesting. NFTs are not necessarily tangible. Even though you are acquiring art, an NFT is not art that you can touch or hang on the wall like you would with a painting or a sculpture that you have collected. It is a collectible digital asset where you have purchased the code that presents an image.
Think of it as anything unique that can be stored digitally - this is what can be sold as an NFT. So, you do not get a beautiful physical painting that you can hang on your wall but just a digital file like a JPG, a GIF, or an MP3 file.
NFTs can be compared to the newest medium in the art world known as Crypto Art. The token stores the information/ code for the file that you are now the proud (and only!) owner of. Think of yourself as buying the property rights to something, rather than the actual physical item itself.
Estate planning considerations
Now that you have acquired this digital asset, how do you protect your investment for your future generations? How do you make sure they get access to it? How does an Estate Plan work for an intangible digital asset work?
Cataloging your digital assets is essential for a comprehensive Estate Plan. Of course, you can hold your NFTs in your trusts, but the more crucial point is to understand how to access these assets in the future, because only then can they be passed down. The trustee/ executor cannot hand this asset physically over to your heirs. So yes, while you can create a Will or a place your NFT into a trust, there is more to the process.
An NFT can only be accessed via a password or personal key, with little exception (even if a court order mandates it). To include an NFT in your Estate Plan, you must be sure that your passcode or personal key is known and passed to the inheritor.
Questions that arise at this point are:
Is there such a thing as a digital Will for digital assets (which includes NFTs)? If yes, how does a digital Will work? If not, how do I cover my digital assets in a regular Will without compromising their protection?
Singapore does not recognize digital Wills. Neither do most countries in Asia.
Accordingly, since a digital Will is not recognized by the Court, the information on the digital assets could be put in a codicil separately. This helps in 2 ways:
- A Will becomes a public document, and you do not want this information to be a part of the main Will since you do not want your login and password information out there
- A codicil can be removed or replaced at any time as and when you shut or update your accounts and passwords, so you do not have to keep updating your Will
The best way to ensure your digital Estate Plan is safe is by keeping it with your lawyer, storing your information in a password-saving online database (like LastPass or Bitwarden) or locking it away in a file cabinet. This way, when the time comes, the people who need to access your information can do so with ease.
“Disclaimer: It is hereby clarified that Lighthouse Canton does not provide any digital token services or advice on acquisition of NFTs or cryptocurrencies. NFTs and the like digital assets are high risk and not suitable for all investors. The article is for information purposes only and deals with succession planning of digital assets.”
This article, provided as a general commentary, is for informational purposes only and is not to be construed as an offer to sell or solicit an offer to buy any financial instruments in any jurisdiction. This article does not constitute, and is not intended to provide, any form of tax, legal and/or accounting advice. You should consult your financial advisors prior to taking any decision(s). This article is based on information from sources which are reliable but has not been independently verified by Lighthouse Canton Pte. Ltd. and its subsidiaries ("LC"). LC has taken reasonable steps to verify the contents of this article and accepts no liability for any loss arising from the use of any information contained herein.Information contained herein are those of the author(s) and does not represent the views held by other parties. LC is also under no obligation to update you on any changes made to this article.Lighthouse Canton Pte. Ltd. and its subsidiary, Lighthouse Canton Capital (DIFC) Pte. Ltd. are regulated by Monetary Authority of Singapore ("MAS") and Dubai Financial Services Authority ("DFSA") respectively. MAS and DFSA have no responsibility for reviewing, verifying and approving the contents of this article and/or other associated articles. The contents of this article may not be reproduced or referenced, either in part or in full, without prior written permission from LC. Please contact us should you wish to republish or reference this article.
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