By Polina Kozlova - 15 Jun 2022
It is safe to assume that nowadays most of us have a "digital
life". Digital life, which inevitably one day will become a
"digital estate". Although the concept of digital assets of
sentimental value is not new, the concept of monetary valuable
digital assets is. We are now at the point where our online lives
need to be considered when declaring our wishes in wills or when
separating.
Many questions remain regarding estate planning and trust
administration when cryptoassets are involved. It is important
therefore that your legal advisor has at least some basic knowledge
of the crypto and NFT market, so they are equipped to provide you
with advice in relation to a separation from your spouse or
partner, estate planning and eventually, estate administration.
When it comes to digital memories, (things like your iCloud
storage, Instagram, Facebook and Google accounts) there are simple
steps you can take to ensure that access passes to someone you
trust on your death. A number of service providers have
already enabled a "legacy service". That service allows you to
nominate someone who will have control of your account after your
death. Although, some providers (for example, Instagram)
don't have that service just yet, it is likely that they will in
the future. For those social accounts that don't provide the
function yet, consider letting your executor know what those
accounts are and where the passwords for them can be located. A
simple step like nominating someone for those social accounts which
already allow you to do so goes a long way and can prevent
unnecessary litigation and the need for court orders in the future.
Given the majority of these providers are based outside of New
Zealand, navigating the legal requirements to obtain access can be
difficult and costly. The last thing you would want is for
your family to not have access to precious memories.
Cryptocurrency and NFTs (non-fungible tokens), on the other
hand, might not be as easy to deal with, which is concerning, given
the value that these assets can hold. The majority of holders of
cryptocurrency and NFTs may not realise that certain considerations
need to be given to these assets in their wills and wider estate
planning to ensure that these assets can be dealt with in
accordance with their expectations and wishes.
What can you do to ensure your valuable digital assets
pass to your family on your death as intended?
- You should let your lawyer know that you hold valuable digital
assets and what those assets are, so that they can make relevant
provisions for those assets in your will.
- You should make an inventory list of your digital assets and
review it as necessary (perhaps, every time a valuable asset is
acquired or disposed of). It may be appropriate for your
solicitor to keep a copy of the inventory together with the
original will.
- You need to ensure the safe-keeping of the digital wallet,
username/private keys and passwords and discuss with your lawyer
whether it may be appropriate for records of those to be kept with
the original will.
- Although none of us plan to die, it is a good idea to obtain
tax advice in respect of your valuable digital assets sooner rather
than later, including advice in respect of tax involved when the
asset passes to a beneficiary under the estate. If you intend
the beneficiary to keep the digital asset, you may need to consider
whether tax will be payable and whether a beneficiary can afford
it. NFTs are also capable of generating income and tax advice
should be sought in that regard as well.
- There may be circumstances where it may be appropriate to not
gift the asset outright to a beneficiary but perhaps for your
executors to hold the asset for a certain period (for example a
gift to a beneficiary who is a minor). If that is the case,
you may want to leave some specific instructions to your executors
on how to deal with the asset. One such instruction may be a
specific direction not to panic and dispose of the asset if it
plummets in value as this can be normal course for the crypto
market.
- You may want to consider whether a life interest is more
appropriate than an outright gift. For example, you want your
spouse to use the income generated for his/her life and for the
asset itself to pass to your children upon your spouse's death.
Such decisions may be dependent upon tax advice but also upon the
will-maker's personal circumstances.
- At present, courts around the globe are faced with the question
of intellectual property rights in NFTs. The US case of trademark
infringement brought by Hermes against Rothchild for trademark
infringement over its luxury handbag (Rothchild created
MetaBirkin's NFTs) will serve as one of the first instances that
explore how intellectual property law is applied to NFTs. It is
important that your will and your estate plan generally deals with
the intellectual rights aspects of NFTs and how those rights
pass.
If you own or are planning to acquire digital assets and need
assistance with estate planning or separation, please contact Polina or any member of our Relationship Property and
Trusts teams.