Whether you are a self-employed artist, designer, writer, or computer programmer – or you own a business that relies on its brand and other intangible assets to generate millions of dollars in revenue annually – your world revolves around intellectual property (IP). Unfortunately, many creatives dismiss concepts of intellectual property as “too commercial,” and business owners often think of it as “something for the lawyers to handle.” But the reality is that those who understand the value of intellectual property and proactively explore avenues for monetization are those who are most likely to secure financial independence.
But, if you are reading this, you are likely among those who already understand the value of copyrights, patents, trademarks, and other forms of intellectual property. You are reading this because you want to know how you can protect your intangible assets not just for yourself, but for future generations. How can you get the most out of your intellectual property during your lifetime, without sacrificing the assets you want to leave to your estate?
Ensuring Ownership of Intellectual Property Assets at Death
In order to pass on intellectual property to your loved ones, you need to own it (either directly or indirectly) at the time of your death. While this may sound obvious, there are some important issues that frequently get overlooked, and that can lead to unhappy surprises down the line. For example:
- Licensing vs. Assignment – The two primary ways to passively monetize intellectual property assets are licensing and assignment. Do you know the difference? With a license, you retain ownership of your intellectual property. Even if you “sell” a copy (such as a software download), what you are really doing is granting a license to use the intellectual property that you own. With an assignment, on the other hand, you are transferring ownership. Once you assign an IP right, it is gone. When exploring potential revenue streams, it is critical to understand exactly what you are (and aren’t) contracting away.
- Working for Someone Else – If you create something while working for someone else, your employer could own the intellectual property rights in your creation. This is true for both traditional employment-based relationships (where many IP rights are automatically deemed to be owned by the employer) and independent contractor relationships (where contractual “work-made-for-hire” provisions commonly transfer ownership to the hiring company). If your goal is to derive independent wealth from your creative or business endeavors, you need to think carefully before you give your rights away for pennies on the dollar. Even if you are a co-founder in a startup, it may be that your startup (and not you personally) is the owner of any IP that you create.
- Expiration of Exclusivity – Patents expire. Copyrights expire. Trademark registrations expire if they are not timely renewed. In order to pass on your intellectual property after your death, you need to take appropriate steps to protect it during your lifetime. This could mean securing multiple types of protection (for example, many types of IP will be eligible for both patent and copyright protection, and copyrights last longer than patents), or actively managing your IP portfolio to ensure that you do not accidentally let your exclusive rights expire.
Structuring Your Estate to Transfer Intellectual Property
With regard to intellectual property, asset protection planning and estate planning go hand-in-hand. You need to preserve your IP assets during your lifetime (most likely under a legal structure that allows you to continue to make beneficial use of your IP), and you need to know that your IP will end up in the right hands after your death. Depending upon the nature of your IP assets, you may also want to place limits on how and when your loved ones can monetize your IP (as was the case for Beastie Boys co-founder Adam Yauch, who added a provision to his will that prohibited licensing the group’s music for commercials).
So, what options do you have available?
1. Your Will
While probably not the best option, one option that is available is to address your intellectual property in your will. Just like tangible assets, you can use your will to specify who should receive your IP after your death. However, there are a number of reasons why using a will is generally inadvisable.
- Assets distributed via a will are subject to the probate process, which can be costly and expensive, especially when complex and high-value assets are involved.
- If you have outstanding debts at the time of your death, your creditors may be able to use your IP in order to satisfy your financial obligations.
- While wills are widely recognized as valid estate planning tools, there are also numerous grounds on which a will can be challenged.
2. A Revocable or Irrevocable Trust
There are numerous different types of trusts that offer varying asset protection and estate planning benefits. We have covered trusts in detail in previous articles, and you can learn more about the options that are available here:
- What is a Trust?
- Domestic Asset Protection Trusts vs. Foreign Asset Protection Trusts
- What You Need to Know about Revocable Living Trusts
- What is the Difference Between a Trust and a Foundation?
3. A Limited Liability Company (LLC) or Corporation
Whether or not you own a business, establishing a business entity (such as a limited liability company (LLC) or corporation) can serve both asset protection and estate planning functions. For example, if you set up a structure where you are the sole owner of an LLC and your ownership interest in the company automatically transfers to a trust upon your death, you can enjoy beneficial ownership of your IP during your lifetime with limited risk exposure, and without fear that you will lose control over your IP after you are gone. This type of combined strategy is often best for company owners and creators, as it allows for maximum flexibility and maximum protection.
Estate Planning for Intellectual Property: Additional Considerations
In addition to these types of general asset protection and estate planning considerations, planning a bequest of intellectual property requires careful consideration of a variety of other factors as well. For example:
- Are you willing to transfer your intellectual property to a loved one (or to loved ones) during your lifetime? If so, do the benefits of making lifetime gifts make this an attractive option?
- What is your intellectual property worth? How does this factor into your overall estate plan or gift-giving strategy?
- Are you prepared to take legal action to protect your intellectual property? If you do not protect your IP, its value can be lost entirely. If you are not prepared to enforce your rights, it may be better to transfer them to someone who is.
- What are the estate and gift tax implications of the various estate planning options you have available? With non-cash assets such as IP, if a bequest triggers substantial tax liability, your loved ones may find themselves with limited options for paying the IRS.
Speak with an Attorney at Jiah Kim & Associates
If you would like to learn more about the options available for passing on your intellectual property after your death, you can contact Jiah Kim & Associates for a confidential consultation. To schedule an appointment, please call (646) 389-5065 or submit a request online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.