Over the last few years there has been an explosion of people buying and using digital assets. You may have heard of things like, ‘Crypto’, and ‘NFTs’, but what are these and how do you plan for handing them on to the next generation?
Cryptocurrency or ‘Crypto’ uses the same idea as traditional money: if there is only so much of it and people want it, it will have value and be worth trading. The most well-known of these is Bitcoin, but others like Ethereum and Dogecoin have become popular. Crypto uses a decentralised ledger of transactions called Blockchain technology to track who owns it when it is bought and sold. Given the rise in value of Crypto, significant sums can be at stake. If you had invested £1,000 in Bitcoin in 2012, it could be worth over £5m now.
NFTs stand for Non-fungible-tokens and they are a way of making digital assets unique. When dealing with physical works of art, like paintings, there is a difference between ‘ownership’, ‘copyright’, and ‘enjoyment’: You can enjoy a photo of the painting in a magazine or you can own a print, however, they are not the original painting. The original painting, that was copied or printed, is still out there somewhere and might be bought and owned by a collector. As you can't possess digital art like physical art, NFTs use Blockchain technology to identify which digital piece of art is the original so that it can be owned and traded like physical works. Like physical works, these can have immense value. Last year the most expensive NFT was sold for approximately £51m.
There are two big issues with passing down digital assets: knowing what is owned and how to access them.
The most important aspect of any succession plan is to make a Will. A Will involves appointing “Executors” who are people you trust to settle your affairs after you have died. It is essential that any succession plan provides for your executors to be able to access your online accounts and passwords in order for them to access and identify your digital assets.
Once your Executors have identified the digital assets, they then need to realise these assets to pass the value on to your beneficiaries. You can nominate who you would like to receive your digital assets in your Will. In a recent case in America, a business lost $250m worth of digital assets as the director died and his executors did not have access to his account passwords. However, care needs to be taken with account keys and passwords as anyone with them can dispose of your assets without your knowledge.
Digital Assets are a new development in succession planning. If you hold digital assets it is important that you include them in your succession plan and take appropriate advice on how to safeguard, what can potentially be, very valuable assets for your beneficiaries.
Insight from Stuart Mackie, Private Client Partner. For more information contact Stuart on 03330 430150.