There’s been a lot of talk about NFTs lately. And most of the chatter is somewhere along the lines of what the heck is a non-fungible token?!
What, exactly, are NFTs? And why in the world are they gaining popularity so quickly? Should you care? Most importantly, how does this all relate to Estate Planning?
If NFTs have left you scratching your head, read on, as we break down everything you need to know (including what they mean for your Estate Plan) about non-fungible tokens in our Complete Guide to NFTs and Estate Planning.
What is an NFT?
Let’s look at it word by word. Non-Fungible means something that cannot be replaced with anything else, even if it holds equal value. In essence, a Non-Fungible Token is something unique, it’s one-of-a-kind.
Think of it like this. One $20 bill can be exchanged for two $10 bills, and the value of what you’re holding (in either option) is equal, even after the exchange. An NFT is not comparable to anything else, therefore it could not be traded for something of equal value. So far so good, right?
Stay with us, because here’s where the water starts to get a little bit murky. NFTs aren’t necessarily tangible. They’re not like a fine piece of collectible art, in the sense that we all (used to) think of collectible art, at least.
It’s not something you can hold, something you can hang on a wall...it’s really not even something you can physically touch. An NFT is a collectible digital asset. Think of it as anything unique that can be stored digitally - this is what can be sold as an NFT. Rather than that beautiful painting you’re going to hang on your wall, you’re getting...a digital file...yes, like a JPG. Or a GIF. Or an MP3 file.
So the question remains: what are you actually getting when you buy an NFT? Suffice it to say, this part isn’t quite as simple. Some aficionados equate the thrill of acquiring an NFT with the simple fact that you’ve purchased somewhat of a digital collector's item, a digital Internet trophy of sorts.
What Do You Physically Get When You Buy NFTs?
Rather than purchasing an actual item you can touch, feel (or hang), with an NFT, what you’re actually purchasing is the code that presents as an image. Known as “Crypto Art,” on some level, NFTs can be compared to the newest medium in the art world. The token (as in, the Non-Fungible Token), stores the information for the file that you are now the proud (and only!) owner of. It’s easier to think of it as you’re buying the property rights to something, rather than the actual physical item itself.
How Do I Buy NFTs?
So the thing with NFTs…You don’t use actual money to buy them. (Because it couldn’t get even more confusing, right?)
NFTs are part of what’s known as the Ethereum Blockchain (a cryptocurrency). If you’re thinking “Bitcoin,” then you’re on the right track. You first have to purchase the cryptocurrency (Ethereum), and then you can begin browsing on your favorite NFT marketplaces to find your next masterpiece.
If you find an NFT you like, you simply bid on it (yep, just like eBay). Once the bidding closes, if you’re the highest bidder, you’ll be the new owner, with all the bragging rights, of an original, one-of-a-kind NFT.
How to Make and Sell an NFT?
More interested in selling an NFT than you are in buying one? You’re not alone. Artists around the world are turning to NFT marketplaces to sell their works of art in record numbers. And you might just make a pretty penny off your digital masterpieces in doing so (just ask Mike Winkelmann, aka Beeple, how $69m feels).
To list your work for sale, browse one of the many NFT marketplaces until you find the one you want to use. Popular sites include Rarible, KnownOrigin and OpenSea.
Log onto the marketplace you want to sell on.
Upload your digital file.
Confirm it is a unique and original piece.
State if there are multiple copies, or if it’s a part of a collection.
Decide if you want to build royalty into it (which would guarantee you also make money on any future sales).
Sit back and wait for the bidding to begin.
Enjoy being a working (translation: paid) artist.
How Do NFTs and Estate Planning Relate?
Thinking about venturing into the world of NFTs? It’s important to protect your investment if you want to ensure your heirs one day gain ownership of your digital art. Through smart planning, you can strategically include NFTs in your Estate Plan.
Holding NFTs inside your Trust is one thing, but you also need to understand how your intangible work of art can be accessed in the future, because only then can it be passed down.
Remember that you (nor your Trustee, who’s charged with distributing your estate) can’t physically hand an NFT over to a beneficiary. So while you can pass it through your Will or Trust, there’s more to the process.
NFTs can only be accessed via a password or personal key, with little exception (even if a court order mandates it). In order to include an NFT in your Estate Plan, you must be absolutely sure that your passcode or personal key is known and passed to the future inheritor. A digital legacy is a great place to store this essential information.
It’s also essential that you clearly and explicitly state the plan for exactly how (and when) your NFT should be transferred to a beneficiary after your passing. Without those instructions, you risk the digital asset being sold off or liquidated.
Want to learn more about how to set up your Estate Plan so that it covers everything (even an NFT)? Trust & Will has made it our mission to make Estate Planning as accessible and easy as possible, so in just a few minutes, with a few clicks, you can have a solid plan in place that protects you and those you love the most. Reach out to learn more!
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