4 Steps to Help Protect Your Intellectual Property

June 14, 2024 Austin Jarvis
Artists, inventors, and other creators may have valuable intellectual property (IP) that must not be overlooked in estate planning. Here's how to identify, value, and incorporate your IP into your estate plan.

Michael Jackson's death in June 2009 was the start of bitter, yearslong litigation between the singer's estate and several notable defendants—including Sony Corp., The Walt Disney Co., and even a Las Vegas tribute act—over the rights to his songs and likeness.

Few people have as much to protect as Jackson did, but even more modest purveyors of intellectual property (IP), including artists, inventors, and content creators, should be thinking about how to safeguard it for the benefit of their heirs.

Here's how to incorporate IP into your estate plan.

1. Identify and protect your IP

Prolific creators may not know the totality of their IP—or that a logo, certain ideas, or a business itself may be IP—so the U.S. Patent and Trademark Office has an online tool to help owners identify the types of IP they may have and the best ways to protect it. Be that as it may, those with significant IP might want to work with an IP attorney, who can facilitate a professional search and help ensure the proper registrations and other protections are in place.

Such intellectual property protections are the legal rights awarded to creators to control and benefit from their work, including:

  • Copyright, the most common type of IP protection, which grants creators exclusive rights to distribute, modify, perform, and reproduce their original works of authorship—such as art, books, music, and more—typically for the creator's lifetime plus 70 years.
  • Patent, which gives an inventor the sole right to reproduce, sell, or use their invention for a limited time—typically 20 years.
  • Trademark, which prevents—in perpetuity—others from using logos, names, symbols, and various so-called source identifiers that distinguish one business from another.
  • Trade secrets—including customer lists, formulas, and manufacturing processes that provide a competitive advantage—which are typically protected by confidentiality, noncompete, or other legally binding agreements.
  • The right to publicity, which grants an individual and their heirs the exclusive right to use or license an individual's name, likeness, and more.

2. Value the assets

For many creators, their IP is their most valuable asset, which is why it's critical to obtain a professional appraisal of the IP's present-day value and future earning potential. Not only is this information essential for estate and gift tax purposes, but a reputable valuation can make all the difference if the estate's value is ever called into question. An IP attorney can also help you find a firm that specializes in such valuations.

3. Create a transfer plan

Once you know the present and potential future values of your assets, you can determine how best to incorporate them into your estate plan. There are generally two approaches:

  • Sell the rights: If you're looking for a near-term payout or if your IP is unlikely to retain its value into the future, you might decide to sell it during your lifetime to maximize the amount you can leave to heirs. Depending on the type of IP, you may owe either ordinary income tax on the proceeds from the sale or capital gains tax on any appreciation of the assets from when the copyright originated, minus any costs you incurred to create the IP—and the proceeds will become part of your taxable estate.
  • Bequeath the rights: If you choose to pass the IP to your heirs, you have several options depending on the type of IP and the size of your estate:
    • If you want to retain control over your IP during your lifetime, one option is to transfer it into a revocable living trust. Only after your death will the trust take irrevocable ownership of the IP, at which point a trustee will manage the assets according to the guidelines you've laid out in the trust documents. That said, the fair market value of the IP will be included in your estate and could be exposed to federal estate taxes of up to 40% on assets above the lifetime exemption amount ($13.61 million per person in 2024).
    • If estate taxes are a concern, transferring the assets into an irrevocable trust removes them from your taxable estate. However, doing so means ceding all IP rights to the trust, so you'll want to be sure you've included detailed instructions in your trust documents regarding how the assets can be used and under what circumstances the IP may be sold. Also, your lifetime exemption amount will be reduced by the value of the IP transferred, minus any applicable exclusions.
    • A third option is to use your will to transfer ownership of the IP, either directly to your beneficiaries or via a testamentary trust established after your lifetime. While not the most expedient method—wills are subject to probate, the legal process of validating and distributing one's estate—it's the preferred way to transfer copyrights, in particular, since certain aspects of the rights could be forfeited if placed in a trust.

An IP attorney can advise you on the best course of action for your situation based on your specific IP and financial considerations.

4. Decide who will manage it

Your trustee or estate executor is responsible for filing the paperwork to ensure the asset protections and registrations are maintained, and they have a fiduciary duty to maximize the assets' value potential for heirs. It may make sense to hire a specialized trustee with the knowledge and experience required to navigate any legal or tax issues that may arise.

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