USA Law and Practice Contributed by: Jana Slavina Farmer, Adam Buchwalter and Dara Elpren, Wilson Elser Moskowitz Edelman & Dicker LLP
Individuals may create NFTs using digital assets they do not own, such as a copyrighted artwork or pho - tographs, and then sell these tokens without any rights to the associated digital asset. In some cases, scammers go a step further by impersonating well- known artists or creators, minting and selling NFTs under false identities. This can lead buyers to believe they are purchasing a genuine piece from a reputable source when, in reality, they are acquiring a counter - feit. Copycat NFTs further compound the problem, as these tokens closely mimic the style, branding or con - tent of popular NFTs and cause financial and reputa - tional harm to the original creators. To combat these issues, some NFT platforms have introduced verifica - tion processes for creators and know-your-customer (KYC) checks, while buyers are encouraged to con - duct due diligence before making purchases. Ultimately, while blockchain technology ensures the uniqueness and ownership of an NFT, it does not guarantee the authenticity of the underlying content. The integrity of the NFT market depends on the hon - esty of creators, the vigilance of marketplaces, and the caution of buyers. As the NFT space continues to grow, both technological and legal solutions are being developed to address the challenges posed by counterfeit NFTs. 10. Gifts, Donations, Trusts and Inheritance 10.1 Planning for Generational Transfer of Artworks Generational transfers of art should be approached with careful, upfront planning to minimise legal and tax risks. State intestacy laws dictate who will inherit artworks by default in the absence of a will, but such disposition may be far from ideal. In the United States, wills and trusts are the common legal instruments that may help an artist or collector ensure that the right people or institutions steward the artwork or collec - tion after death. Many collectors use revocable living trusts to hold artwork during their lifetime and avoid Legal Structures Wills and trusts
probate at death, which simplifies the process for the heirs and maintains the artist’s or collector’s privacy. Limited liability companies In appropriate circumstances, other legal structures should be considered, including placing art collec - tions in a limited liability company (LLC). This may be appropriate, for instance, to facilitate fractional trans - fers to heirs and maintain a collection. For significant collections, establishing a foundation or a private museum may be a preferred manner to steward the collection and provide tax savings. It is important to consider the implications and benefits of each struc - ture to tailor the solution to the artist’s or collector’s wishes. Choice of Executor and/or Trustee A significant consideration includes choosing an executor and/or trustee with experience in the man - agement of art collections. This person should have the right skills and experience in dealing with high- value art to be able to effectively manage and maintain a collection or sell the collection, depending on the original owner’s intent and preset plan. Conflict-of- interest considerations should be taken into account (eg, consider whether the art executor may have an incentive to undervalue the artworks for their own benefit). Minimising Conflict Between Heirs When multiple heirs are involved, the planning must consider whether an art collection will be divided or kept intact, how to minimise potential conflict between the heirs, and how to address value imbalances. Joint ownership is rarely advisable as it frequently creates a source of conflict between the heirs. Due to the per - sonal significance of artwork, collectors may want to consider whether to establish a life estate for their spouse, with the artwork ultimately passing to a child or other family member after the spouse’s passing. Need for Clear Documentation Successful art succession plans also depend on clear documentation confirming title for each artwork, prov - enance records documenting the chain of ownership from the artist to the current owner, and appraisals. Collectors should maintain a comprehensive inventory of all artwork that contains details of the artist’s name,
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