Transferring wealth to the next generation involves much more than property, savings accounts, or fine art. New forms of wealth have emerged from the digital economy, including many complex, liquid and often misunderstood assets. In spite of this complexity, these digital and non-traditional assets are an increasing source of wealth that families can use to transfer wealth to future generations. Examples include: cryptocurrency, copyright royalties and others. Legacy planning is changing at a rapid pace as we continue to see new types of wealth emerge.
Changes in the Wealth Landscape
In the last decade, the wealth landscape has transformed completely. The wealth held by families is not only in physical property (bricks and mortar) but also in digital formats. These include cryptocurrency, NFT collections, loyalty points, and monetised content. Younger generations are increasingly familiar with the concept of digital wealth and its importance in everyday life. The digital wealth of family members can be traded and has value that appreciates at rates greater than those of traditional investment vehicles.
Loyalty Points: More Than Just Travel Miles
Once viewed as trivial or of little importance, loyalty points can reach significant values and provide access to substantial rewards. Loyalty points can be found in airline miles, hotel rewards programs, premium credit cards, etc. However, because of their short shelf life and restrictions associated with specific accounts or card products, transferring them between family members can be difficult if they are not properly documented.
Protecting Intellectual Property Rights
All forms of written works (books), composed music, patented inventions, online courses, etc., constitute intellectual property. When properly developed, intellectual property generates long-term income in the form of royalties or licensing fees. The problem is creating legal protections around these rights and securing their income streams. Unlike physical property, intellectual property is easily overlooked when a person passes away, unless they have taken the time to document their rights and assign those rights to beneficiaries in a will.
Transferring Cryptocurrency and NFTs: Challenges with Valuation and Volatility
When it comes to digital currencies (cryptocurrencies) and NFTs (non-fungible tokens), there are new challenges related to valuation and volatility. While both can be assigned a monetary value, that value can fluctuate wildly over time. Therefore, to ensure that the recipients of these assets are able to claim and transfer them, the recipient needs to have access to the wallet(s) containing the digital currency and/or NFTs, and a basic understanding of how to transfer them. One major difference between digital currencies and traditional accounts is that they are not overseen by a central authority and therefore do not require approval to be transferred from one person to another. This means that if a person does not take steps to protect the keys to their digital currency wallet, they can lose access to the funds forever. An experienced inheritance tax specialist can help navigate the uncertain terrain. They’ll know how to declare and value such assets appropriately, as well as minimise tax liabilities using available reliefs. They can also advise on trusts or gifting strategies that make modern assets easier to pass down.
Preparing for the Unexpected
The first principle of unconventional assets is clarity. Simply mentioning the existence of an asset in a will is rarely sufficient. All digital and intangible assets must be accounted for in a comprehensive financial plan. This may include identifying the accounts, providing instructions on how to access the accounts (including storing passwords securely), establishing valuations, and projecting future income expectations. Modern wealth is not limited to the contents of a safe or bank account. Rather, it exists in servers and is secured by encryption. Not having a plan for the disposition of modern wealth is one of the most frequent ways that modern wealth disappears.
