Taxpayers who own intellectual property (IP), such as a patent or copyright, need to know how to account for it in their estate plan. IP generally falls into one of these categories: patents, copyrights, trademarks, or trade secrets. For estate planning purposes, IP raises two important questions:
Valuing IP is complex, so it is best to obtain an appraisal from a professional with specific experience in IP valuations.
Once the value is established, you need 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 impact your decision, but you must also consider your income needs, as well as who is 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, hold on to it at least until you’re ready to retire or you no longer need the income. You might want to retain ownership of the IP if you feel that your children or other transferees lack the desire or wherewithal to exploit 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.
A primary goal of any estate plan is to ensure that your assets are distributed per your wishes after your death. It’s easy to remember to include tangible assets, such as homes and vehicles, but don’t forget to account for intangible assets, including IP.
If you have questions about including intellectual property in your estate plan, contact me at SDitman@BerdonLLP.com or your Berdon advisor.