Estate plans and intellectual property: What to consider

When it comes to estate planning, most people only think of creating a will. Some may also think of creating a trust, but when a person owns a business or is a creator of any kind, they should also consider their intellectual property when planning their estate.

Learn what you need to do to avoid conflicts in your business after your death.

What is intellectual property?

Like real and personal property, intellectual property is an asset that can be bought, sold, licensed, exchanged, or gratuitously given away. And the intellectual property owner has the right to prevent the unauthorized use or sale of the property.

"The most notable difference between intellectual property and other forms of property," according to the Darden School of Business at the University of Virginia, "is that intellectual property is intangible. It cannot be defined or identified by its own physical parameters. IP must be expressed in some discernible way to be protectable."

Why is estate planning important?

Twenty years ago, estate planning for intellectual property did not seem as important for business owners as it does now. As the knowledge economy grows, though, a company's intellectual property is more likely to determine future economic success.

Intellectual property differentiates between products and is often the key to fast growth in market share and premium profits. "Indeed," notes the Darden School of Business, "a leading project may derive its success from all seven of the major types of intellectual property:

• Trademarks
• Design rights
• Copyrights
• Patents
• Know-how
• Confidential information for manufacture (trade secrets)
• Databases (software to manage the supply chain and targeting)"

What's involved in an intellectual property estate plan?

The first step is creating an intellectual property estate plan team to put together a general estate plan. The team should consist of the asset owner, an estate attorney, specialty CPAs or valuators to valuate assets and determine tax implications, the owner's personal attorney, and an intellectual property attorney.

Then everyone should work to "drill down into what the intellectual property really is," says Randy Fox, principal at Two Hawks Consulting, LLC and editor-at-large for the Planned Giving Design Center. "Whether it's written or filmed content, technical know-how, business processes, etc., not only identifying IP but placing a realistic, tangible value on it is key for an estate plan. Then you need to devise a well-thought-out plan for how it's distributed after the creator's death or disability."

"It's important to determine what rights stay with the estate or if any rights transfer to someone else upon someone's death," says Dmitry Lapin, intellectual property attorney with Danchuk Law, LLC. "Hypothetically, two individuals who worked together to create IP may agree that if one passes away, the other gets all the rights to the IP as opposed to the deceased's estate."

"Once there is a clear understanding of what IP will be part of the estate," Lapin says, "it's wise to get an appraisal on the IP." The value will determine what's best to do with the IP: divide among heirs, sell IP assets, or even asset donation. Determining what assets should be made into an LLC or go into a trust to avoid going through probate should also be discussed.

What should an intellectual property plan look like?

The plan should be organized and clear. "A simple chart could contain the name of the IP, type, location, passwords, valuation or appraisals, revenue (if any), other legal documents, and contracts.

The more detailed, the better," says Jeffrey Nogee, attorney and partner at Tully Rinckey LLC. Once created, the plan should be updated as assets expand and contract.

How to protect intellectual property

Choosing the executor of the estate plays a large part in protecting intellectual property. "Certain IP requires timely filing with the USPTO," says Lapin, "or may require oversight to ensure royalties are properly paid. This could involve a fair amount of work and possible risk to the executor if they mismanage the IP."

The executor should know, for example, that although a patent is good for 20 years, regular maintenance fees must be paid or the patent will expire," warns John Rizvi, registered patent attorney. "Five years after you file a trademark, you have to file a statement of continued use, or your trademark is abandoned."

After that, you must file every 10 years. And the executor must notify the copyright office when a creator dies to maintain protection for 70 years after the date of death.

Ultimately, the plan is the protection. It's never too early to create an intellectual estate plan, but it can be too late.