Addressing intellectual property requires careful estate planning

by Adler Pollock & Sheehan P.C.
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Adler Pollock & Sheehan P.C.

Intellectual property (IP), such as copyrights and patents, can hold enormous value. Whether IP rights are a significant source of wealth or only a small fraction of your estate, it’s critical that you properly address them in your estate plan. These intangible assets behave differently from other types of property, so careful planning is required to be sure their value is preserved for your family.

Understanding IP

IP generally falls into one of four categories: patents, copyrights, trademarks and trade secrets. Let’s focus on only patents and copyrights, creatures of federal law intended to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to benefit economically from their work for a certain period.

In a nutshell, patents protect inventions. The two most common are utility and design patents:

  1. A utility patent may be granted to someone who “invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new useful improvement thereof.”
  1. A design patent is available for a “new, original and ornamental design for an article of manufacture.” To obtain patent protection, inventions must be novel, “nonobvious” and useful.

Under current law, utility patents protect an invention for 20 years from the patent application filing date. Design patents last 15 years from the patent issue date. For utility patents, it typically takes at least a year to a year and a half from the date of filing to the date of issue.

When it comes to copyrights, they protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, sculptures, photographs, sound recordings, films, computer software, architectural works and other creations. Unlike patents, which must be approved by the U.S. Patent and Trademark Office, copyright protection kicks in as soon as a work is fixed in a tangible medium.

For works created in 1978 and later, an author-owned copyright lasts for the author’s lifetime plus 70 years. A “work-for-hire” copyright expires 95 years after the first publication date or 120 years after the date the work is created, whichever is earlier. More complex rules apply to works created before 1978.

Estate planning considerations

For estate planning purposes, IP raises two important questions:

  1. What’s the IP worth?
  2. How should it be transferred?

Valuing IP is a complex process. So it’s best to obtain an appraisal from a professional with experience valuing this commodity.

After you know the IP’s value, it’s time to decide whether to transfer the IP to family members, colleagues, charities or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will affect your decision. But you also should consider your income needs, as well as who’s in the best position to monitor your IP rights and take advantage of their benefits.

If you’ll continue to depend on the IP for your livelihood, for example, hold on to it at least until you’re ready to retire or you no longer need the income. You also might want to retain ownership of the IP if you feel that your children or other transferees lack the desire or wherewithal to take advantage of its economic potential and monitor and protect it against infringers.

Whichever strategy you choose, it’s important to plan the transaction carefully to ensure your objectives are achieved. There’s a common misconception that, when you transfer ownership of the tangible medium on which IP is recorded, you also transfer the IP rights. But IP rights are separate from the work itself and are retained by the creator — even if the work is sold or given away.

Work with a professional

Having your assets distributed according to your wishes after your death is a primary reason for having an estate plan. And whether artistic or scientific endeavors are the source of your wealth, or simply meaningful diversions, it’s likely that you care deeply about who ultimately possesses your works and enjoys their benefits. Contact your estate planning advisor to help ensure your IP is correctly accounted for in your plan.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Adler Pollock & Sheehan P.C. | Attorney Advertising

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