DON’T FORGET TO INCLUDE IP IN YOUR ESTATE PLAN

Emily Ciotoli Smith, CFP®, Financial Planner
May 3rd, 2017 | 2:05 PM

Even though software developer Josie held several patents and copyrights, it never occurred to her to include them in her estate plan — until her estate planning advisor raised the issue. He explained that these intangible assets can be highly valuable and that anyone who owns intellectual property (IP) needs to decide how they want to pass the assets to their heirs.


4 CATEGORIES

IP generally falls into one of four categories:
1. Patents
2. Copyrights
3. Trademarks
4. Trade secrets

This article will focus on the most common IP assets, patents and copyrights. Both patents and copyrights are intended to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to exploit the economic benefits of their work for a predetermined time period. In general, patents protect inventions and copyrights protect ideas.

PROTECTING INVENTIONS AND IDEAS
There are several types of patents, including utility and design patents. A utility patent may be granted to someone who “invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new useful improvement thereof.” A design patent is available for a “new, original and ornamental design for an article of manufacture.” to obtain patent protection, inventions must be novel, “nonobvious” and useful.

Under current law, utility patents protect an invention for 20 years from the patent application filing date. Design patents last 15 years from the patent issue date. For utility patents, it takes at least a year and a half from the date of filing to the date of issue. 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, sculptures, photographs, sound recordings, films, computer software, architectural works and other creations. 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. For works created in 1978 and later, an author-owned copyright lasts for the author’s lifetime plus 70 years. A “work-for-hire” copyright expires 95 years after the first publication date or 120 years after the date the work is created, whichever is earlier. More complex rules apply to works created before 1978.

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, sculptures, photographs, sound recordings, films, computer software, architectural works and other creations. 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. For works created in 1978 and later, an author-owned copyright lasts for the author’s lifetime plus 70 years. A “work-for-hire” copyright expires 95 years after the first publication date or 120 years after the date the work is created, whichever is earlier. More complex rules apply to works created before 1978.

For works created in 1978 and later, an author-owned copyright lasts for the author’s lifetime plus 70 years. A “work-for-hire” copyright expires 95 years after the first publication date or 120 years after the date the work is created, whichever is earlier. More complex rules apply to works created before 1978.

VALUE AND TRANSFER ISSUES
For estate planning purposes, IP raises two important questions: 1) What’s it worth? And 2) how should it be transferred? Valuing IP is a complex process, so it’s best to obtain an appraisal from a professional with experience appraising these assets.

After you know your IP’s value, 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 affect your decision, but 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, for example, 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

If you’ll continue to depend on the IP for your livelihood, for example, 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 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.

THE RIGHT HANDS
Like Josie, many people own intellectual property these days yet have failed to plan for its future. To ensure your work falls into the right hands and is transferred in the most tax-efficient manner, talk to your Lenox Advisor, tax and legal professionals.

To learn more or speak directly with a Lenox Advisor, click here to contact us.

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