To prevent the risk of digital collectibles being lost forever in the blockchain upon the death of an NFT trader, lawyers recommend crafting a handover plan to pass on assets. From a legal perspective, creating an estate plan is a good approach for arranging the management and disposal of properties in preparation for incapacity or death. Wealth services lawyer Jaime Herren advises NFT owners to take this step to ensure that their NFTs are passed on to their loved ones or a charity. Herren emphasizes the need for planners and fiduciaries with technical knowledge to manage substantial crypto assets and ensure they end up where the owner wants after their death.
“If you have a valuable asset, it is always worth taking steps to ensure it ends up where you want after your death, whether that is to your heirs or to a charity. Substantial crypto assets require planners and fiduciaries with technical knowledge.” Herren said.
The attorney clarified that beneficiaries would not need to take any further action if appropriate plans were already in place. They only need to have a wallet that can receive and hold tokens. Herren further explained that if the NFT owner is covered by a comprehensive plan, the executor or trustee will be responsible for transferring their NFTs to beneficiaries. However, NFT collectors must provide executors and trustees with instructions to access their wallets.
Herren warned against holding blockchain assets in a cold wallet with only a brain key from an estate planning perspective. He emphasized that this is the worst-case scenario validating tales of crypto-fortunes being permanently lost.
“Obviously, from the estate planning perspective, the worst thing you can do is hold your blockchain assets in a cold wallet with only a brain key. That is the dreaded situation validating tales of lost permanently lost crypto-fortunes.”
According to Glassnode, around 2.7 million Bitcoin worth $76 billion has not been touched in a decade. Crypto influencer Anthony Pompliano believes that these assets may either be held by disciplined investors or are already forgotten and lost.
Cointelegraph inquired about the possibility of automating the transfer of NFTs to specific wallets after death. Oscar Franklin Tan, the chief legal officer of NFT platform Enjin, stated that this is more of a legal than a tech issue. Smart contracts can transfer NFTs upon the owner’s death, but a trusted third party must verify the death to link it to the smart contract through an oracle. Ajay Prashanth, the head of ecosystem growth at NFT insights platform bitsCrunch, agreed that setting up smart contracts is technically feasible but needs to address practical challenges and legal considerations.
Prashanth explained that after verifying the collector’s death with legal personnel, it is necessary to set up the smart contract to connect with legal documents that define beneficiaries or specify desired beneficiaries. This will enable the smart contract to find the correct recipients and receive specific instructions, such as transferring the NFTs:
“Smart contracts are certainly flexible enough to transfer NFTs on the death of the owner. However, death in the physical world is not an on-chain event, and the death would have to be linked to the smart contract through an oracle for it to trigger.”
As wealth transfer between generations occurs, banks, fintech, crypto exchanges, social media platforms, and other content providers will likely create clear death-management processes to alert people about digital assets before death and provide easy access instructions. Until then, these steps ensure that assets go to the intended people or organizations and are not stuck in digital purgatory.