Web 3.0 has the potential to have a profound impact on estate planning as various aspects of our lives become tokenized.
The first harbinger of this revolution is the passion for Art NFTs. There is more here than meets the eye. Not only are there very personal reasons for collecting, but there are also unanswered questions about their meaning in the cultural context as well as how NFTs are handled for tax purposes. This place is a whole new world for estate planning.
Although the promise of instant wealth and fame is always tempting, the current popularity of collecting art NFTs may also reflect modern concerns about capitalist consumer culture. The idea that eventually all digital images, no matter how ephemeral or mundane, will become valuable and collectible, seems to make consumerism more meaningful. The result is that people will buy Art NFTs not only as a consumer but also as a collector.
People collect for all kinds of reasons. Some collect in a way that instructs us about the nature of the world; Some are gathered in a way that reflects nostalgia of a lost childhood; Some gather to represent imaginary worlds, lost worlds or distant worlds in time and space. Collecting is a narrative process: objects become symbols and a collector is needed to convey its meaning. Some collections become sites of family and cultural memory.
By collecting Art NFTs, people will be able to continuously interact their relationships with the real and virtual worlds as both are shaped by new technology. Indeed, the whole concept of Web 3.0 lends itself to archiving. Collecting is an internal action and the digital asset will be taken out of circulation and “in” the blockchain based on its relationship with the collector. The collection, like art, is taken out of the public domain and displayed privately. The great sale of NFTs may soon be replaced by the sale of access to virtual collections, although tickets are the main source of NFT profits.
As the virtual collection of digital assets evolves, so will the interaction of the virtual and physical spaces where they are displayed. As data is registered and tokenized on the blockchain, smart contracts will define what is public information, a consensus ledger, or information on private information that is agreed upon and kept secret. Art NFTs can mathematically apply what is public and what is private, what is domestic and what is not; And, how the performance of the collected NFTs refers to the creator, collector and the digital world outside, inside your virtual home.
Art NFT is expected to see similar inquiries as has been raised about the political nature of art collections. Does the collection process allow (or even encourage) one kind of objectification or “other” of humans? When a digital image ceases to be defined by its function, its meaning depends entirely on the person viewing the object. The result is that all objects in the collection have a common denominator: the possessive abstraction called possession. The result is that the collection becomes more valuable than the sum of its parts. To preserve this value, special planning is needed, adapted to the challenges of the rapidly changing environment that Web 3.0 is becoming.
Planning for art NFT collectors requires an understanding of both the art market and the art NFT market. This includes how people behave when collecting, the advisory process for collectors, special aspects of managing digital assets, tax and non-tax issues involved in transferring ownership and control of Art NFTs, Art NFT transactions of income tax, NFT gifting and planning to sell NFTs individually or as a collection.
People will collect Art NFTs and that huge array of tokens will last far beyond their lifespan. It is a new world for clients and consultants, with as yet undefined risks. This requires expertise in estate planning and management of digital assets. Estate planners have experience in the first area, but we should redouble our efforts to gain more expertise in the second area.
Matthew Erskine is the Managing Partner at Erskine & Erskine (www.erskineco.com).
