How Your Intellectual Property Factors into Your Estate Plan

A properly designed estate plan accounts for all of your assets—including both your tangible assets, such as real estate or personal property, and your intangible assets, such as your investments, digital assets, and intellectual property. This article will: (1) describe the various forms of intellectual property you may own, and (2) identify the importance of accounting for your intellectual property in your estate planning. In light of the anticipated reduction in estate tax exemption amounts, in the absence of proper planning, your intellectual property may be subject to a 40% estate tax.

A. Trademarks

1. What Is a Trademark?

A trademark is an expression (including, but not limited to, a word, sign, phrase, color, scent, or device) that is used to distinguish one source of goods from another. Trademarks are meant to reduce consumer confusion by enabling consumers to associate a given mark with its source. For example, when consumers see a white or gray apple logo on computers or phones, they are likely to associate such product with “Apple” and that association may affect their purchase decisions.

Trademarks are often owned by businesses and certain trademark rights may arise even if the mark is not registered with the US Patent and Trademark Office (“USPTO”). Trademarks may exist in perpetuity—that is, as long as a trademark continues to be in use and complies with the applicable trademark laws at the time of renewal, it may be renewed every 10 years for an unlimited number of 10-year terms.

Trademarks may be licensed (which may allow your business to expand into new markets), but close enforcement of such a license is necessary to ensure that your trademark is not diluted because of a lack of quality control. Similarly, trademarks that either stop being used or are used so much that they become generic (such as “Aspirin” or “Escalator”) lose their trademark protections.

2. How Does Your Trademark Factor into Your Estate Plan?

Because trademarks may exist in perpetuity, it is essential that your estate plan accounts for trademarks that you may own. For example, a trust you establish may receive the royalties that you or your business would otherwise receive from a licensing agreement. In addition, naming a “special” Trustee or a Board of Trustees for purposes of managing your business and ensuring your trademark is properly managed after your passing is crucial for business and trademark owners who intend for their businesses to continue after they pass away.

B. Trade Secrets

1. What is a Trade Secret?

A trade secret is confidential information that is commercially valuable because it is kept secret. A famous example of a trade secret is the Coca Cola recipe.

2. How Does Your Trade Secret Factor into Your Estate Plan?

Because trade secrets retain their value by being kept secret, properly designed succession plans for a business may provide direction as to management of trade secrets.

C. Patents

1. What is a Patent?

A patent is the grant of certain property rights to inventors which allows inventors to exclude others from making, using, or selling an invention for a defined period of time—effectively granting the inventor a monopoly. In exchange, inventors are required to provide a written description of the invention to the public sufficient to enable others to do the same.

There are three types of patents: design patents, utility patents, and plant patents. Depending on the type of patent, different rules apply. Each type of patent is briefly described below:

2. How Does Your Patent Factor into Your Estate Plan?

Because patents receive protection for a relatively short period of time, they may not be the best candidates for intergenerational estate planning. Nonetheless, the value of patents can grow substantially over short periods of time. As a result, low-value patents that have yet to appreciate in value may still be good candidates to contribute to self-directed Roth IRAs (the growth upon which would be tax-free) for potential income tax benefits or to irrevocable trusts for potential estate tax benefits.

D. Copyrights

1. What is a Copyright?

A copyright protects original works of authorship—which often includes creative works such as literature, music, movies, computer software, architecture, photography, and art. For works created after January 1, 1978, a copyright exists for the life of the author plus 70 years after the author’s death. “Works made for hire” (i.e., works created by employees within their scope of employment, the copyrights of which belong to the employer, not the employee), pseudonymous, and anonymous works receive copyright protection for 95 years from publication or 120 years from creation, whichever is shorter.

2. How Does Your Copyright Factor into Your Estate Plan

As with trademarks, copyrights can exist for multiple generations before protections expire. Beneficiaries may receive royalties from copyrights and may enforce rights against those who infringe upon protected works.

In addition, copyright law is unique in that it allows “statutory heirs” (such as a surviving spouse, children from a prior marriage, lineal descendants, siblings, and other family members, depending on the circumstances) to terminate transfers or licenses after a certain period of time. Thus, for examples, transfers of copyrights to a trust may potentially be “undone” by statutory heirs, but the same principle is not true of transfers of copyrights done under a Last Will and Testament (which only takes effect upon death). Similarly, because copyrights provide these “termination rights,” copyrighted works are generally difficult to utilize for estate and gift tax purposes. Finally, because copyrights can exist after an author’s death, Trustees and Personal Representatives may be able to extend the protection offered to protected works by 70 years by notifying the US Copyright Office of the author’s death.

E. Right of Publicity/Name, Image, and Likeness (“NIL”)

1. What is Your Right of Publicity/NIL?

Unlike trademarks, patents, and copyrights, one’s right of publicity and their NIL are defined by state rights. Wisconsin law recognizes one’s right of publicity under Wis. Stat. § 995.50. Effectively, this right allows individuals to control the use of their NIL and to prevent others from misappropriating one’s NIL without that individual’s permission.

Wisconsin law recognizes this right during a person’s lifetime. It does not appear that the right to publicity extends to one’s descendants (i.e., “post-mortem rights”). See Heinz v. Frank Lloyd Wright Foundation, 229 U.S.P.Q. 201 (W.D. Wis. 1986).

2. How Does Your Right of Publicity/NIL Factor into Your Estate Plan

Because it does not appear as though Wisconsin law recognizes post-mortem rights in one’s right of publicity/NIL, such rights presumably do not pass at death. Nonetheless, because Wisconsin law is unclear on this issue, this may change.

One’s right of publicity—if it is transferrable—may have estate tax consequences. For example, in a legal battle between Michael Jackson’s Estate and the IRS, the Estate initially reported a value of $2,105 for Jackson’s NIL while the IRS indicated that Jackson’s NIL should be valued at $434,264,000. The Tax Court ultimately concluded that Jackson’s NIL was valued at $4,153,912.

Given that one’s estate tax base (i.e., one’s taxable estate less deductions and exemption amount) is subject to a 40% tax, tax planning is crucial.

F. Conclusion

Intellectual property rights are an often-forgotten component of estate planning, but they deserve the same attention that other assets receive.

If you would like to know more about intellectual property rights, how your existing intellectual property factors into your estate plan, how Wisconsin marital property law may affect your ownership interests in intellectual property, or would like to establish your estate plan, you may contact Michael Bezoian at (608) 283-5618 or his assistant, JoJean Murphy, at (608) 252-9320.