Estate planning for intellectual property is an important consideration when intangible assets make up a meaningful portion of overall wealth. While estate plans often focus on real estate, investments and personal property, assets such as patents and copyrights can carry significant value. Thoughtful planning helps make sure these assets are properly valued, protected and transferred according to your intentions.

Defining IP

IP generally falls into four main categories: patents, copyrights, trademarks and trade secrets. We’ll focus here only on patents and copyrights. They’re protected by federal law to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to benefit economically from their work for a certain period.

Patents protect inventions, and the two most common are utility and design patents. Under federal law, utility patents protect an invention for 20 years from the patent application filing date. (It typically takes at least a year to a year and a half from the date of filing to the date of issue.) Design patents last 15 years from the patent issue date.

Copyrights protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, film and photographs. 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. And copyrights last much longer than patents. The specific term depends on various factors.

Valuing & Transferring IP

Valuing IP is a complex process. Unlike physical assets, the value of IP often depends on future income potential. Valuation may consider factors such as licensing agreements, royalty streams, market demand, brand recognition and comparable sales. Often, a professional appraiser is needed to determine fair market value. Accurate valuation is particularly important for estate tax reporting and equitable distribution among heirs.

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 bequests after your death. The gift and estate tax consequences will likely 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, 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 beneficiaries 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 help make sure 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.

Estate Planning For Intellectual Property

If you hold intangible assets, such as a patent or copyright, contact us for assistance estate planning for intellectual property.