There are three basic types of intellectual property (IP): copyrights, trademarks and patents. Copyrights do not protect ideas, but do protect the way those ideas are expressed. Trademarks protect logos, slogans or other ways a business is identified. Patents protect inventions.
IP presents unique challenges for estate and business planning. It is a difficult asset to value. So before any arrangements are put in place, the client should engage an appraisal firm with IP expertise to assign a fair market value (FMV) for the IP. Once FMV is known the client can consider estate planning or financial transactions with the IP. For example, it is not unusual for a client to hold his IP in a separate entity from his business and enter into a license agreement with the business entity. The license agreement could be challenged as disguised salary if the licensing fee is not at FMV.
Copyrights and trademarks can last a long or indefinite amount of time, although, with respect to trademarks, they must be renewed every ten years. Patents, on the other hand, have a limited life, typically 20 years. These differences need to be taken into account when formulating planning ideas. A client with IP consisting largely of patents, for example, could license them to the business to provide retirement income, while the asset depreciates over time reducing his taxable estate.
In addition to the valuation difficulty, IP is an asset class that requires attention. Filings need to be renewed, and rights need to be defended if challenged. The client should identify people with knowledge of this area of the law during his life so that the value of the IP can be maintained after his passing. For example, probate alone will not transfer a patent. The executor must also file transfer documents with the USPTO.
