Understanding DAOs, DAO Collectibles, and Their Impact on Estate Planning

The digital age has brought, for some, exciting new concepts like “DAOs” and “DAO collectibles,” which might sound technical but are easier to understand than you’d think. These digital assets are different from digital currencies, and they can play a big role in planning not just for what happens to your belongings after you pass away, but also for managing your assets while you’re alive—especially if you become unable to make decisions due to illness or incapacity. In this article, I will break it all down in plain language, explore how these assets fit into your planning, and provide practical guidance, including sample language for legal documents.

What is a DAO?

Picture a group of people who come together online to make decisions as a team, like a book club or a community project, but instead of a leader calling the shots, everyone votes, and the rules are enforced by computer code. That’s a Decentralized Autonomous Organization (DAO). A DAO runs on a blockchain- a secure, digital record-keeper, like that used for cryptocurrencies, and uses “smart contracts” (self-running programs) to handle things like voting or spending money.

For example, a DAO called “AICollective” might pool money to invest in artificial intelligence projects. Members own digital “tokens” that act like membership cards, giving them a say in decisions, such as which projects to fund. Because it’s “decentralized,” no single person is in charge, and it’s “autonomous” because the code keeps everything fair and transparent.

What is a DAO Collectible?

A DAO collectible is a unique digital item linked to a DAO, often called an NFT (Non-Fungible Token). Think of it like owning a rare comic book, baseball card, or piece of art, but it’s digital and stored on the blockchain. These collectibles might represent membership in the DAO, a piece of digital art, a virtual plot of land, or a share in something the DAO owns, like a real-world asset.

For instance, a DAO named “ArtCollective” could issue 50 NFTs, each tied to a famous painting they bought together. If you own one, you’re a member of the DAO and might vote on whether to loan the painting to a museum. These collectibles can be valuable, especially if the DAO or its assets gain popularity.

How Are DAOs Different from Digital Currencies?

Digital currencies, like Bitcoin or Ethereum, are like digital cash. You can spend, trade, or save them, and they’re “fungible”—one Bitcoin is worth the same as another, just like a dollar bill. They’re built for transactions, like buying goods or sending money.

DAOs and DAO collectibles aren’t money. A DAO is a way to organize and collaborate online, like a digital co-op. DAO collectibles are one-of-a-kind items, like owning a unique piece of art or a VIP pass, not something you’d use at a store. You might buy a collectible with digital currency (like using Ethereum to get an NFT), but the collectible’s purpose is tied to ownership, membership, or voting in the DAO.

Why Do DAOs/DAO Collectibles Matter for  Planning?

Planning for your assets has two big big goals: estate planning, which decides fundamentally who receives your belongings (money, house, digital assets) after you pass away and how they are received, often incorporating estate or income tax, and asset protection plannings, and life planning, which defines how and by whom your assets are managed during your lifetime, especially if you become incapacitated and can’t make decisions due to illness, injury, or mental decline. DAOs and DAO collectibles affect both because they’re valuable, digital, and complex. 

Here’s why they matter:

• They Can Be Valuable:  DAO collectibles, like rare NFTs, can be worth thousands or even millions. If you own tokens or NFTs tied to a successful DAO, they could be a major part of your wealth. Your estate plan needs to ensure they go to your chosen heirs, like your spouse or children, while your life plan should cover who manages them if you can’t.

• They’re Hard to Access Without Instructions:  DAO tokens and collectibles are stored in a digital wallet, protected by a private key (a super-secure password). Without access to your wallet, neither your family (after you’re gone) nor your trusted representative (during your life) can claim or manage these assets. Clear instructions in your estate and life plans are critical to avoid losing them, and to facilitate control by your trusted fiduciaries.

• DAOs Involve Ongoing Responsibilities: DAO tokens often come with voting rights or duties, like deciding how the group’s money is spent. Your plans should specify who handles these responsibilities if you’re incapacitated or after you pass. For example, do you want your trusted agent to vote in a DAO that owns property, or should your heirs inherit and decide?

• Tax and Legal Issues:  Laws around digital assets are still evolving and vary by country. When you die, your collectibles might face estate taxes, and during incapacity, someone may need to report income from DAO activities. Your plans can include guidance to handle taxes and legal requirements smoothly. Keep in mind that application and enforcement of even well settled rules and principals is uncertain, and might bring anomalous results.  

• They’re Not Like Physical Items

Unlike a car you can hand over, transferring a DAO collectible means sharing digital wallet access. Your estate plan must explain how to pass them to heirs, and your life plan needs to empower someone to manage them securely if you’re incapacitated, without risking theft by hackers.

Planning for Incapacity with Trusts or Powers of Attorney

To manage DAOs and collectibles during your lifetime, especially if you become incapacitated, you can use tools like a trust or a general durable power of attorney. A trust lets you appoint a trustee to manage your assets according to your instructions, either now or if you can’t make decisions. A power of attorney names an “agent” (someone you trust) to act on your behalf, and “durable” means it stays valid even if you lose mental capacity.  These documents, however, should be tailored to confer authority explicitly digital assets, and should identify whether the trustee or agent has unlimited or restricted authority to vote or make decisions within the DAO.  Because these are unique and fairly new assets, you probably don't want to rely on well-established fiduciary duties to guide agents and trustees; how these duties might be interpreted and applied in this new world is uncertain. 

For example, if you own a valuable NFT tied to a DAO, a trust could hold it and authorize your trustee to manage voting or sales if you’re unable to.  Alternately,  or, a power of attorney could empower your agent to gain access to your digital wallet to handle your DAO responsibilities, like voting on a proposal, during a hospital stay.

Sample Language for a Power of Attorney

To ensure your agent can manage your DAOs and collectibles, your power of attorney needs specific language to cover digital assets and DAO-related actions. 

Here’s an example of what you might include in a general durable power of attorney (note: always work with a lawyer to tailor this to your situation and local laws):

Digital Assets and Decentralized Organizations: I grant my agent the authority to access, manage, transfer, sell, or otherwise deal with my digital assets, including but not limited to Decentralized Autonomous Organization (DAO) tokens, Non-Fungible Tokens (NFTs), and other blockchain-based assets stored in digital wallets or accounts. This includes the power to: (1) Access my digital wallets using private keys, seed phrases, or other authentication methods, as securely provided by me; (2) Exercise all rights and interests associated with my DAO memberships, including, but not limited to voting on proposals, participating in governance, and managing distributions or benefits; (3) Buy, sell, trade, or transfer DAO collectibles and tokens on my behalf, including engaging with smart contracts or blockchain platforms (4) Delegate tasks related to DAO participation or collectible management to third parties, as deemed necessary, while maintaining oversight of their actions.

My agent shall act in my best interests, consistent with my prior actions or stated preferences regarding these assets, and shall take reasonable steps to secure access credentials to prevent unauthorized use.

This language gives your agent permission to handle your digital assets, vote in DAOs, and manage collectibles if you can’t, while emphasizing security and your wishes.

Tips for DAOs and DAO Collectibles in Your Plans

To protect your digital assets during life and after death, consider the following:

• Inventory Your Assets: List all your digital assets, DAO memberships and collectibles, noting the DAOs, tokens, NFTs, blockchains (e.g., Ethereum), and their estimated value.

• Secure Your Wallet: Store private keys or recovery phrases safely, like in a bank vault or with a trusted attorney. Consider multi-signature wallets or key-splitting services for added security.

• Provide Clear Instructions: In your will, trust, or power of attorney, explain how to access and manage your digital assets. For example, “My son should inherit my AICollective DAO tokens and vote on my behalf, or sell them if the DAO dissolves.”

• Work with Experts: Digital asset laws are complex. Consult a lawyer familiar with blockchain and estate planning to ensure your trust or power of attorney covers everything legally.

• Review Regularly: DAO collectibles can spike or drop in value, and DAOs may change rules or close. Update your plans every year or two to reflect what you own and want.

Conclusion

DAOs are like online teams run by members and code, while DAO collectibles are unique digital treasures, like rare NFTs, tied to those teams. Unlike digital currencies (online money for spending), DAOs and collectibles are about collaboration and ownership. They matter for both estate planning—passing assets to heirs—and life planning, like managing assets if you’re incapacitated. Tools like trusts or powers of attorney, with clear language, let trusted people handle your DAOs and collectibles securely during illness or after you’re gone.

By cataloging your assets, securing your wallet, and planning with care, you can ensure your digital legacy is protected, whether it’s voting in a DAO or passing a valuable NFT to your family. A little planning now keeps your digital world safe for the future, no matter what life brings.