What Happens to Your NFTs and Crypto After Death?

The Growing Importance of Digital Asset Estate Planning

Wealth accumulation traditionally involves tangible possessions such as cash, investments, real estate, vehicles, and valuable items like jewelry and art. However, a new category of assets is rapidly gaining prominence: digital assets, encompassing cryptocurrencies and non-fungible tokens (NFTs).

The Largest Wealth Transfer in History

Currently, a substantial transfer of wealth is underway, projected to involve approximately $16 trillion in the coming decades. While transferring ownership of physical assets is relatively straightforward, managing the succession of digital assets presents unique challenges.

A recent study by Angus Reid, commissioned by Willful, revealed that only one in four individuals have shared their passwords and account details with a trusted person. This raises concerns about the future accessibility of billions of dollars worth of virtual holdings.

The Rise of Cryptocurrency and NFTs

Throughout 2021, digital assets were frequently featured in news reports. Although cryptocurrency isn't a recent invention, its increasing value, endorsements from influential figures like Elon Musk, and offerings from established financial institutions like Morgan Stanley have drawn significant attention.

Accessing cryptocurrency requires a private key – typically a 64-character passcode. Without this key, the virtual currency remains inaccessible. Numerous instances have been documented where individuals lost access to substantial bitcoin holdings due to lost hard drives or forgotten keys.

The case of Gerald Cotten, founder of the cryptocurrency exchange Quadriga, exemplifies this risk. Upon his death in 2018, he retained the private keys to over $250 million in client funds.

Understanding Non-Fungible Tokens

NFTs, or non-fungible tokens, are also gaining traction, operating on the same blockchain technology as cryptocurrency. The sale of digital art by Beeple for $69 million, a virtual Toronto home for over $600,000, and the trading of virtual NBA highlights for over $200 million demonstrate the potential value of these assets.

Like cryptocurrency, accessing NFTs often requires a private key.

The Limitations of Traditional Estate Planning

Upon a person’s death, assets are distributed according to a will or, in its absence, a government-determined formula. However, wills often lack current asset lists and crucial access information like passwords and keys.

An estimated tens of billions of dollars in assets remain unclaimed in banks due to families or executors being unaware of these accounts.

Challenges with Digital Asset Recovery

Unlike traditional financial accounts, recovering digital assets isn’t as simple as contacting a bank. There is no central authority governing NFTs or cryptocurrency, making it difficult to determine if a deceased individual held valuable digital holdings.

Furthermore, simply knowing about the existence of digital assets isn’t enough; access methods must also be known.

Generational Differences in Digital Asset Sharing

A study by the Angus Reid Forum, commissioned by Willful, indicated that individuals under 35 are less likely to share account access with loved ones (19% versus 32% for those over 55). While understandable given their age, this could leave younger families vulnerable in the event of an unexpected death.

Protecting Your Digital Assets: Practical Steps

To safeguard your digital assets, consider using a password manager like 1Password to store account information, logins, and private keys, and share the master password with your executor or store it with your will.

However, be aware that password sharing may violate terms of service or privacy laws. Directive Communication Systems offers an alternative approach, providing documentation to content providers (Google, social media platforms, etc.) to access account contents via a data dump.

Utilizing Digital Wallets and Exchanges

Storing digital assets in a digital wallet or exchange may provide access to private keys or offer a death-management process. Coinbase, for example, provides clear instructions for executors to retrieve assets.

As a backup, store your private key on paper in a secure location like a safe deposit box.

Creating a Comprehensive Asset List and Will

Maintain an up-to-date list of all your assets, both physical and digital, accessible to your executor and key family members. Review and update this list annually or whenever you acquire new assets.

Create a will that clearly outlines your wishes for asset distribution, including specific instructions for digital assets. This is crucial for releasing account contents, as Coinbase, for instance, requires a copy of the will.

The Future of Digital Asset Estate Planning

As the wealth transfer continues, banks, fintech companies, and other platforms are likely to develop streamlined death-management processes. However, proactively taking these steps now ensures your digital assets are distributed according to your wishes and avoids them becoming lost in the digital realm.