Virtual art and non-fungible tokens (NFTs), combined with the related involvement of artificial intelligence, are increasingly among the holdings of ultra-high-net-worth individuals and families, as well as desired as inheritances of and from them. This makes knowledge of the issues crucial to estate planners domestically and internationally.
Lawrence J. Trautman wrote an excellent paper providing welcome details and insights for those seeking concepts regarding the future potential of virtual art and NFTs. For purposes of this review, I was asked to comment solely as to whether the paper is helpful for estate planners, irrespective of if they have clients with virtual art and NFT holdings. Keeping in mind that the author doesn’t mention estate-planning issues and presumably estate planners weren’t his focus, I respectfully suggest the typical readership of Trusts & Estates may look to other articles on virtual art and NFT holdings in which the author focuses on estate matters.
Given the paper focuses on the future of virtual art and NFTs and doesn’t address estate issues, as it was likely written for a different readership, the typical Trusts & Estates reader should give deep thought before developing actionable ideas for clients relating to virtual art and NFTs.
Trautman provides a plethora of research and distills for the reader what he believes remains to be determined in the short and long term regarding the use, economics and legal issues of virtual art and NFTs.
The author’s abstract nicely summarizes what’s in the article:
This article proceeds in seven parts. First is a discussion about the new and explosive market for digital art. Second, I explore the evolution of the digital world and virtual property. Third is an explanation and historical account of the blockchain and virtual currencies. Fourth is coverage about non-fungible tokens. Fifth is a brief look at unresolved issues impacting the law of NFTs and potential solutions are provided. Sixth is a few thoughts about the future of digital property. And last, I conclude. … This paper is a valuable addition to the literature by providing a readable introduction and overview of what is now known about the likely impact of blockchain technology and non-fungible tokens to music and art.
The author does exactly as he claims and should be commended for this.
An estate planner may still take away from the article opportunities to ponder. The varying speed of development of virtual art and NFTs and the economic and legal uncertainty may lead to relatively low estate-planning valuations along with potential for explosive value growth until economic and legal stability are attained. Purely from an economic wealth transfer viewpoint, this may reinforce an estate planner’s consideration of outright gifts (perhaps to trusts), grantor retained annuity trusts and installment sales to grantor trusts. Similarly, post-mortem, an estate planner may suggest funding of testamentary, generation-skipping tax transfer or otherwise credit shelter trusts.
Another aspect an estate planner might glean from the article goes back to the general estate tax principle that the guiding law needs to be determined and only then the estate tax rules are applied. To the extent the guiding law is uncertain, the estate tax law will be as well. Therefore, the estate planner needs to address the lack of certainty and figure how to communicate and make a client comfortable regarding the planning advice being provided.