FormalWill.com Articles

Advantages of NFTs

NFTs (non-fungible tokens) are a specific type of asset held on the blockchain. Many NFTs are pieces of digital art, although there are other uses, such as real estate deeds and certificates of authenticity for real-world assets. The advantages to holding one suck digital token are as follows:

• The blockchain makes it nearly impossible for assets to be stolen or forged.
• Ownership is easily verifiable, depending on which blockchain it’s held on.
• Legitimate transfer of non-fungible tokens are a simple, clear-cut process.
• Assets are non-fungible, meaning that they’re unique and are well-suited to represent individual items.

NFTs are often used for pieces of art. Just as a painting by Claude Monet has value, so too do artworks represented by non-fungible tokens. For example, a CryptoPunk NFT created by Larva Labs could be worth multiple millions of dollars. As with physical art, these non-fungible tokens can offer a way to transfer wealth from one generation to another.

Estate Planning Challenges With Non-fungible tokens

NFTs have the same challenges as other assets that are stored on a blockchain. Heirs must be aware of the existence of the NFTs, know which blockchain the NFT is held on, and be able to access the NFT as an owner. None of these factors happen by chance. Preparation by the asset holder prior to their death is vital to ensure the orderly transfer of assets to heirs.

Estate planning, especially by those who hold sizeable assets, is vitally important. However, the ownership of NFTs or other blockchain assets makes consulting a qualified professional of utmost importance. Without planning, these assets could easily be lost forever.

Blockchain technology is a shared, decentralized ledger system that records certain transactions and assets. It’s typically used to store information about cryptocurrency, like Bitcoin. It consists of virtual “blocks”, which contain information about who owns a certain amount of crypto. These blocks are connected by hashes (the hash at the end of one block connects with the hash at the beginning of the next block). In this way, they form a “chain” of information that cannot be easily removed or altered.

As more and more people acquire assets that are represented using blockchain, estate planning has had to evolve to accommodate both the assets and the technology. As with any new technology, the laws regarding blockchain are lagging behind its use. That means that estate planning is especially important in cases where a substantial amount is held on a blockchain.

Estate Planning Difficulties With Blockchain

Having blockchain assets raises specific problems in regards to estate planning. Unlike other assets, which can be easily discovered and are often accessible with a death certificate, no such safeguards exist on the blockchain. Some other issues that complicate estate planning include:

• Heirs are unaware that digital assets exist (that is, they do not even know to look for them).
• Heirs know that the assets exist, but do not know where they’re held (are they on an exchange? In a wallet?)
• Heirs know the above information, but do not know the appropriate passcodes to access them (or do not know where the passcodes are securely stored).

Estate planning is vital for anyone who holds sizeable assets that they want to pass on to their heirs. However, in the case of these digital assets, it’s of paramount importance that thorough estate planning, with an advisor knowledgeable about blockchain, be performed as soon as possible in order to ensure the transferability of wealth.

Baby boomers, born between 1946 and 1964, are the wealthiest generation in history, holding substantial assets and wealth. As they age, a significant amount of wealth is expected to pass from baby boomers to their millennial children and grandchildren. Generational wealth is slowly shifting into the hands of the Millennial generation, who have less purchasing power than their Baby Boomer parents. 

Millennials and GenZ are poor; these two younger generations are both facing emotional and financial turmoil in their lives. It’s no secret that with the 2008 recession, the global pandemic, and the inflationary cost of everything, it is not secret that Millennials and GenZ have very little in the way of savings. Wealth is (supposedly) being hoarded by the Boomer generation and that money is going to be transferred to the younger generations. Millennials, particularly older Millennials, are running out of time to generate wealth, as many are approaching middle age. They’re no doubt looking forward to a wealth transfer to help them settle in their lives.  

Millennials and GenZ are facing an astronomical cost of everything and older Millennials are running out of time to have children (if they are having children). Will the wealth transfer help? 

The great wealth transfer of $68 trillion is on the horizon. Boomers (the generation born after World War 2) will pass on $68 trillion to the next generation. But there are new tax laws in place; some adult heirs may be expected to withdraw from their IRA’s within a decade of inheritance in order to pay taxes.  What does this mean for your inheritance?  What does the $68 trillion wealth transfer mean for you?

Millennials who receive substantial inheritances may experience improved economic prospects, while those who do not may face challenges in building wealth and achieving financial stability.