The Succession of Digital Assets: NFTs, Cryptocurrency or Online Accounts
There has been an increase of wealth distributed in various forms of digital assets or platforms. For example, NFTs, cryptocurrencies such as Bitcoin or Ethereum or even online social media or gaming accounts may have substantial value in them. Investment is no longer restricted to its traditional forms, leading to the emergence of many alternative assets investments, most of which are done on an anonymous basis.
To consider how to plan the succession of digital assets, it would be useful to distinguish between digital assets that are transferable and those that are non-transferable.
Transferable Digital Assets
Transferable digital assets include cryptocurrency, NFTs, funds kept in online accounts such as Alipay or WeChat pay. These can generally be passed down by including provisions in a will. Most countries may treat them the same as any traditional assets (such as bank accounts or real estate property) and require a form of grant of representation to access the digital assets.
Some companies may even provide the feature on their software platform whereby the user can designate an individual as an emergency contact to receive the data in the user’s account under conditions specified by the user, such as upon the user’s death or incapacity. This feature would potentially allow an executor or trustee nominated in the user’s will (if there is one) to gain access to valuable personal, financial and business information after the user’s death even before presenting an authenticated grant of probate to the company, as well as to act on such information for the benefit of the user’s next generation pursuant to the will. For example, Apple has a policy known as Legacy Contacts where the person who is set as a Legacy Contact can access photos, messages, notes (but not passwords, music, subscriptions, etc.) with just the access key generated when the Legacy Contact was set and the death certificate.
Given the popularity of digital assets, popular trading platforms for cryptocurrency and other digital assets already have some form of structured policy for dealing with account holders who have passed away. Some trading platforms have adopted the traditional requirements of dealing with any other physical asset, i.e. requiring beneficiaries to provide the grant of representation, death certificate and other supporting documents to allow access into the deceased person’s account, whilst other platforms give their users options to complete their know-your-client procedure which allows the platform to identify the person using the account, and therefore assist beneficiaries in accessing such accounts.
However, as currently there is no uniform standard on how to pass on digital assets, the best and simplest method is to make sure your beneficiaries are able to find out not only what digital assets you own. Importantly, and due to the highly secured and encrypted nature of digital assets such that a form of password or key is required to access the assets, it may be important to store such passwords in a safe place but also make your beneficiaries aware of how to access such passwords and keys.
Non-transferable Digital Assets
Non-transferable digital assets are usually digital assets that are licensed for personal use, but not owned in a legal sense. These include email accounts, social media handles and accounts or mobile app accounts and information contained therein. These generally cannot be passed down simply by a will and may require non-conventional estate plans.
Despite the personal nature of these non-transferable Digital Assets preventing them from being passed down, it is possible to preserve these in accordance with the wishes of the deceased person. For example, Instagram offers a service known as “memorialising” the deceased person’s account, which allows the memorialized account to be kept as if it was frozen in time. Facebook offers a further service that allows the person to designate a legacy contact to manage the memorialized account to a certain extent (such as writing a pinned post to share a final message or to update the profile picture, but not allowing removing or changing past posts etc.). YouTube also provides an estate planning service known as Inactive Account Manager, which allows the person to designate who should have access to the information or whether the account should be deleted. Otherwise, individuals may need to go through hoops of customer service and in the end not even be able to access any personal or important information.
Inheritance tax considerations
Digital assets (in particular cryptocurrencies) can fluctuate in value rapidly. In Hong Kong, where estate duty has been abolished, this generally does not create any concern. However, digital assets may also be based in other jurisdictions that impose inheritance tax, and therefore the applicable jurisdiction of the digital asset or the company through which the digital assets are held before investing in such should be given consideration and taken into account when conducting estate planning.
With diversified forms of valuable assets and technological advancements offering new solutions to asset succession and security, individuals face more considerations than ever in wealth protection and succession. It is highly recommended that a legal framework should be carefully planned to ensure their wealth can be preserved free from unwanted interference.
Disclaimer: This article is for reference only. Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.