Estate Planning For NFT Collectors
This article should not be considered financial or legal advice. Everyone’s situation is different. Please consult a professional.
Let’s talk about your death. Fun topic for the weekend, right?!
Unfortunately, I can say with almost absolute certainty that you are going to die.
I can’t say when, of course, but it’s going to happen.
Many of us don’t make plans for what’s going to happen when we die because we don’t like to think about our own death. That’s understandable, but it also doesn’t make our ultimate demise any less likely to happen. So a much better idea is to plan for it.
What would happen to your crypto/NFTs if you got hit by a bus tomorrow?
Chances are, few if any of the people in your life even know the value of your digital assets, and if they do, they have no idea how to access them or what to do with them. In that case, your assets are, for all intents and purposes, worthless.
Given how valuable some NFTs have gotten, that could be thousands or potentially millions of dollars lost to the blockchain forever.
Before getting into the steps to take to protect digital assets, let’s cover some basics.
A will covers who is legally entitled to your assets when you die. A power of attorney (the name may change depending on jurisdiction) covers who has power to make decisions on your behalf about your assets or your medical care if you are incapacitated or unable to decide for yourself.
We’re not going to be talking here about legal entitlement to assets; those should be covered in your will and power of attorney. Every jurisdiction is different, but one commonality is that YOU. SHOULD. HAVE. A. WILL. I won’t get into the consequences of not having one, other than to say that it will make the lives of your loved ones infinitely easier, and minimize the likelihood of confusion and fights down the road.
So we’ll assume you have those in place. The legal side is covered; that is, you’ve outlined who you want to have your assets. Now the question is, how do you get those assets into their hands?
If you have a bank account, your executor can go into the bank and provide documentation, and the helpful bank employee can make arrangements to transfer assets as appropriate. But what about your digital assets? It’s not as simple as asking Gmail to transfer your email address to someone else, or calling customer service for Ethereum and asking to transfer your NFTs.
Coinbase does have policies covering death, but most of us keep little to no assets on crypto exchanges. Someone on behalf of your estate needs to actually take steps to recover your assets, and that’s where we leave the legal side and enter the practical side of estate distribution.
Let’s say you’re married, and you have no kids.
Your will leaves everything to your spouse, and your spouse is the executor of your estate. There’s no question about who is entitled to your Bored Ape, but does your spouse know how to access your hardware wallet? Or how to navigate Opensea? Or how to properly price your Ape? There are many steps from “I have an NFT” to “The value of the NFT has been converted to fiat and is now in a bank account that my loved ones can use”, and in all likelihood, your lawyer or accountant, if you have one, will not be of any assistance. Instead, you likely need to write a digital asset plan. This plan, which would not form part of your will and is not legally binding, is a set of instructions allowing your family or executor to navigate these assets and, eventually, convert them to a form that is usable to the recipient.
Creating a transition plan for your digital assets requires customization and careful planning. Boring, but essential. As lawyer Pamela Morgan wrote in her book Cryptoasset Inheritance Planning (an easy and strongly recommended read), a plan has four goals:
- Allow your heirs to take possession of your crypto assets when the time comes, but not before.
- Minimize the risk and opportunity for anyone to steal your crypto assets.
- Provide an opportunity for your loved ones to hold those assets securely.
- Prevent disputes among your heirs and avoid legal problems where possible.
It goes without saying that no plan should involve you divulging your seed phrase (since you should NEVER give it to anyone), but instead might involve directing your executor to know where to find it (e.g. a safe or safe deposit box, or other tamper-proof and safe location) so that recovery is possible. For example, you might indicate on your inventory list that the seed phrase of your Ledger wallet can be found in safe deposit box #177 at First Third bank. That way, people will know where to look, but won’t be able to access it so long as you are the only one allowed into it.
There may also be value to setting up a Shamir backup, where you break up your seed phrase into multiple parts and direct a user where to find each one, which gives you more flexibility in where or with whom to store your seed phrase since a portion of it is useless without the complete set. Finally, you’ll also need to document any 2FA that is required to access passwords on your devices, or information that is on the devices themselves.
You’ll want to direct the reader, in plain language, how to go through the process of logging into your MetaMask, navigating to Opensea or another marketplace, and listing NFTs for sale. Instructions should be written in plain language, and provide enough detail to be able to be followed, while not providing so much information that a third party reading the document could steal your information.
For example, you might have your Metamask password in a password manager, and you might indicate how to access 2FA on your phone to log into your password manager, but unless someone has your phone, they won’t actually be able to access it. Another consideration is where to direct your crypto in order to convert it to fiat; check with the exchange you use regarding handling accounts after death; they may have different policies, and accessing a user’s account after death may be a criminal offense in some jurisdictions.
One of the most important steps in a crypto asset plan is pointing loved ones toward one or more people that they can trust. It can be hard to choose someone that is both a) trustworthy and b) technically capable, but if we assume your family is not as technologically advanced as you are, they’ll likely need a lot of help navigating the world of NFTs and crypto. Ideally, those helpers would also be able to assist in pricing NFTs properly, so your heirs don’t inadvertently sell a rare NFT for far less than it is worth.
Once you’ve completed your instructions, they should be kept in a sealed envelope (so that your heirs will know if it’s been tampered with) and stored securely. Similar to your seed phrase, it should be stored somewhere that is fireproof, waterproof, and locked.
There is no universal backup plan that applies to everyone. Each situation is different, including the technological savvy of heirs, how trustworthy your loved ones are, and how complicated your situation is. However, any steps you take are better than none.
As some people have accumulated truly life-changing wealth in crypto and NFTs, estate plans have not moved in lockstep to keep up, and millions in assets are at risk of loss.
As a starting point, a document that you may find useful can be found here.
Once again, this is not legal advice, and you should consult with appropriate professionals before taking any steps. However, this template may act as a guide to help you on your way and can be edited to suit your specific situation.
Planning for your death is never fun, but it’s also important to think about the legacy that you want to leave behind.
Do you want your loved ones to remember you fondly, or find themselves frustrated after years of chasing millions of dollars in value from NFTs and crypto that they were unable to access?
Taking steps to help guide them along, and providing information and education while you’re alive can be invaluable in ensuring that what you have can go to those that you love most.
