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Estate Planning For Intellectual Property

Estate planning for intellectual property

When we think of the word “property”, we think of all those tangible things in the world that we can see and touch, such as real estate, vehicles, jewelry and clothing. But there is a world of intangible property that can be bought, sold, transferred, gifted or bequeathed that is no less important and no less valuable. Intellectual property such as patents, copyrights and trademarks are intangible items that may compose a significant portion of an author or inventor’s estate. The value of intellectual property depends on the extent that it is exploited by the owner (e.g. manufactured and sold for financial gain) and depends on the extent that the owner protects his or her rights to it (e.g. prepared to sue for unauthorized use). A patent, copyright or trademark essentially creates a monopoly for the owner for his or her creation for a limited period of time that excludes anyone else in the world from taking advantage of. Just like any other form of property, intellectual property and the rights therein are transferable upon death.

Ideally, an intellectual property owner would want to make a specific bequest for his or her patent, copyright or trademark to a person who can continue to maximize and preserve its value. In many ways, the intellectual property owner sees the protected idea or invention as his or her legacy and wants to see someone carry forward and proliferate its lasting impact on the world. In the absence of either transferring it during life or making it a specific bequest, the intellectual property becomes a part of the owner’s residuary estate where it is equally divided among the heirs according to the terms of the will or according to Michigan’s intestate succession laws. Poor planning can result in the unintended consequence of a unsavvy blood relative (or a group of them together) inheriting the property that has no idea how to utilize it or no desire to protect its value.

As previously stated, intellectual property is only worth as much as the owner is willing to defend it. Patent infringements and the sale of counterfeited copyright works are very widespread, and the owner must be prepared to aggressively fight against unauthorized use of his or her property. Failure to timely defend against these infringements can lead a court of law to believe that the owner either gave implied permission to the violation or otherwise waived his rights. Trademarks that are not properly protected and become widespread in the marketplace risk becoming “genericized” and lose their legal protection. Copyright owners such as the Walt Disney Company and Nintendo spend millions every year to protect against knock-offs of flagship characters such as Mickey Mouse and Mario, respectively. Failure to protect copyrights can cause the property to pass into the public domain for anyone to use.

The length of duration for exclusive rights to intellectual property vary depending on the type of protection held and the date the rights were acquired:

  • Utility Patent – patent that protects the functionality of an item. An issued U.S. utility patent has a lifespan of 20 years from its earliest effective filing date. If the patent was filed before June 8th, 1995, then it has a lifespan of the longer of (1) 20 years from the earliest effective filing date OR (2) 17 years from the issue date. Utility patents are subject to ongoing maintenance fees during its lifespan to preserve the protection.
  • Design Patent – patent that protects the ornamental non-functional design of an item. An issued U.S. design patent has a lifespan of 14 years from the date of issue if filed prior to May 13th, 2015, or 15 years from the date of issue of filed on or after May 13th, 2015. There are no maintenance fees for design patents.
  • Copyright – protection against the unauthorized copy or reproduction of work that is created and fixed in a tangible medium such a literature or art. If the work was created on or after January 1st, 1978, then the copyright has a duration of the author’s lifespan plus 70 additional years (if multiple authors, then it is 70 additional years after the last surviving author’s death). For works created before January 1st, 1978, the copyright has a duration of 28 years from the date of registration plus the right to apply for a renewal term of 67 years (a total of 95 years). As of 2018, all works published in the United States published before January 1st, 1923 are in the public domain.
  • Trademark – protection of a recognizable design or expression which identifies goods and services from a particular source. Trademark registration is valid for 10 years after filing and is subject to optional 10-year renewal periods. However, despite valid registration or renewal, trademarks can lose their rights if the owner stops using it (considered abandoned), is improperly licensed to another, or becomes generic over time. A trademark becomes generic when it becomes ubiquitous with the goods of services offered in the marketplace and the owner did not take sufficient steps to protect his or her rights (e.g. Aspirin, a trademark of Bayer AG, became genericized and ubiquitous with pain medication when the owner did not protect its rights).

Finally, there are tax consequences to be considered for intellectual property. In 2018, a taxpayer’s basic exclusion amount is $11.2 million ($22.4 million for married couple) which is the amount of assets at the end of life that can be shielded from federal estate tax liability. Intellectual property often requires valuation by a specializer appraiser and it may be the case that the property is worth several million dollars more than the basic exclusion amount. As such, the estate could be subject to estate taxes between 30% and 40%. It might be tempting to give intellectual property away during life, but those conveyances could trigger gift tax consequences if a single recipient receives more than the annual exclusion amount of $15,000.00 (in 2018). Although Michigan no longer has an estate tax or inheritance tax, other states you reside in may have their own tax consequences for such transfers.

An owner of intellectual property should give particular thought as to what the future of his idea or invention should be when he or she is gone. Is it better to sell or transfer it while I am alive? Will my child continue the legacy envisioned for the intellectual property? What tax consequences will there be for my estate or my heirs? If you have questions about estate planning for your intellectual property, do not hesitate to contact the estate planning and probate attorneys at Kershaw, Vititoe & Jedinak PLC.

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