Take-Away: Most intellectual property assets can be transferred by a Will or a Trust. But some intellectual property rights have specific statutory durations, while others have an indefinite ‘self-life’ if properly used or registered. The key point is to make sure that these unique assets, with their intrinsic values, are clearly addressed in the Will or Trust, and usually they are distributed pursuant to a specific bequest, if for no other reason than to remind fiduciaries of the importance of protecting these assets.

Background: Intellectual property rights are acquired in many ways, and they come in various forms, and with different statutory durations. A snapshot summary of some forms of intellectual property follows:

  • Trade Secrets: A trade secret is information that has value from being just that, it is maintained as a The owner of the trade secret, or the owner’s fiduciary, must take steps to ensure there is no disclosure of the trade secret. A trade secret that is intentionally prevented from disclosure has an indefinite ‘shelf-life’ (if it is kept secret.)
  • Trademarks: A trademark is a symbol or word that represents a company, a product, or a service. While a trademark can be obtained through usage, a trademark can also be registered either with the state and the federal government. A trademark has an indefinite ‘shelf-life’ so long as it is in use by its owner.
  • Patents: A patent that is awarded to its owner permits a limited monopoly to make, use, offer to sell, or the right to sell a particular invention. This limited monopoly right acts as an incentive to the owner to spend his/her resources on the innovation. A registered patent has a ‘shelf-life’ of 20 years. A patent can sometimes result in a joint ownership of equal shares, occurring by default. The owners can divide the rights associated with a patent by contract as they may decide. Often patents are acquired through a work-for-hire situation. A patent’s ‘bundle of rights’ can be divided in many different ways, such as the multiple rights to make, use, sell, or import products that are patented.
  • Copyrights: A registered copyright protects original works of authorship, such as books, music, or software. A copyright also includes the right to reproduce, distribute, or make derivative works from the copyright. A copyright is obtained by being fixed to a tangible medium of expression which can be registered. As such, a copyright protects a particular form of expression, but not ideas or concepts. The mere transfer of a physical object, e.g. book, sheet music, a DVD, does not transfer the copyright unless the copyright is expressly identified in order to transfer title to the copyright to another individual. While a copyright can vest without registration, in an unregistered form a copyright will be far more difficult to enforce. Moreover, at common law, an unregistered copyright is more limited in its scope. If the copyright is to be registered, it can be registered at any time. Similar to the patent, a copyright can be acquired in an employment setting; often the employment contract will identify who is to own the copyright materials. Generally, an individual may possess a copyright for their lifetime plus 70 years. However, copyrights registered prior to 1978 are subject to different rules.
  • Pre-1978:  For a copyright that was registered prior to 1978 the duration of the copyright is 28 years plus a 67 renewal period. Some court cases have interpreted that renewal term as being a mere expectancy, so that if the author is still alive at the time of the renewal, a grant of these rights will be held valid, but if the author dies prior to that renewal period, the transfer of the renewal rights to the original grantee would be ineffective and the renewal rights associated with the copyright will be transferred only pursuant to the federal copyright statute. There are no termination rights associated with pre-1978 copyright licenses.
  • Post-1978:  For a copyright that was registered after 1977 the duration of the copyright is the life of its author plus 70 years. There is no renewal term for these post-1977 copyrights. Most types of copyright licenses executed after 1977 may be terminated by its author, or the author’s surviving spouse, children, grandchildren or the personal representative of the author’s estate, in that order of priority, during a 5-year period that begins 35 years after the license was executed or the date of the first publication of the copy written work.

Estate Planning Instruments with Intellectual Property Rights: Since intellectual property rights can carry significant values, they need to be carefully identified and protected in the owner’s estate planning instruments.

  • Powers of Attorney: This specific attention probably starts with the owner’s durable powers of attorney for property management and financial affairs. These unique assets may warrant a narrow, limited durable power of attorney held by an individual who is familiar with the special rules that go along with the management and preservation of that intellectual property interest.
  • Trusts: Intellectual property rights can also be transferred to a revocable grantor trust during the owner’s lifetime so that they can be managed by a successor trustee in the event of the owner’s incapacity. If that is the case then special powers granted to the trustee should be included in the trust instrument, including the right to incur reasonable expenses to enforce intellectual property rights. It is best to not try to solely rely on generic powers given to a trustee, or the Michigan Trust Code’s statutory trust powers, to hold, manage, and possibly assign or gift intellectual property rights.

Planning:  Some issues or concerns to be aware if an estate holds intellectual property rights follow:

  • Address Digital Assets: Frequently the intellectual property rights, including contracts, assignments, licenses, applications, etc. are contained in digital assets of some sort. An inventory of those digital records and assets needs to be accessible, either by an agent under a durable power of attorney, the personal representative of the owner of the intellectual property rights estate, or trustee of the revocable trust that holds the intellectual property. As such, passwords should be made available to fiduciaries, along with a review of the terms-of-service (TOS) agreements that address how a third-party fiduciary can access the owner’s digital asset account. The owner’s Will should also address how the personal representative of the owner’s estate (or his/her Trust) should access and maintain or dispose of those digital assets that expressly pertain to the owner’s intellectual property rights. An individual with several intellectual property assets and the digital records that go along with those unique assets might consider using a separate ‘digital asset trust’ that also holds title to the intellectual property rights so that these valuable assets are not overlooked or ‘lumped in’ with other assts.
  • Specific Bequests of Intellectual Property: It is probably best to address the disposition or transfer of intellectual property rights in a specific provision of a Will (or Trust) and not permit the intellectual property interests to pass as part of the residuary bequest. Restated, without expressly addressing intellectual property rights separately as intangible personal property assets, those valuable rights may end up passing with the residue of the owner’s estate, e.g. part of the residue may be assigned to a charity, which might be inconsistent with the owner’s testamentary intent.
  • Specific Fiduciary Instructions: Inasmuch as trademarks can be implicitly abandoned if not kept in use, the fiduciary of the owner’s estate should be expressly directed to monitor the continued use of a trademark, and if need be pursuing legal enforcement of contractual agreements, e.g. a term license, in order to preserve the value of the trademark. Along these lines, the fiduciary should also be expressly directed to complete any applications or registrations if they are pending at the time of the owner’s death or disability, to pay any maintenance fees or registration fees from the owner’s estate, or to assign those additional expenses incurred by the estate to the recipient who is to receive the intellectual property asset.
  • Valuations: If the owner’s estate consists of intellectual property rights, those rights will have to be valued for purposes of filing a federal estate tax return. That means that experts will have to be hired to conduct the appraisal of the intellectual property rights. Those appraisals could easily become very expensive, as they will contain subjective interpretations of potential future usage, along with more objective criteria such as the duration remaining of the intellectual property right. Due to that high expense, it might be wise to assign the costs to obtain those appraisals to the beneficiaries who will receive the intellectual property asset. Also, due to the highly subjective nature of the appraisal, the Will or Trust might use an equitable allocation of federal and state estate and inheritance taxes, as the hard-to-value intellectual property right asset may be the subject of an IRS audit which could result in additional estate taxes being paid by the owner’s estate.

Conclusion: For several years when I was a practicing attorney, I seldom had clients who owned intellectual property assets. Later, I started to have clients who owned copyrights to text books they had written, a handful of inventors who held several patents that provided substantial royalty income to the owner through licenses of those patents, and a several retirees who had acquired interests in patents through their employment with corporations and universities. However,  what sensitized me the most to the value and ‘hidden’ aspect of  intellectual property interests in an estate was not so much those clients who held these unique property interests, but my reading of a 1990’s Tax Court decision, In re V.C. Andrews Estate, where the IRS successfully argued that the noted recently deceased author had to add another $1.0 million to her taxable estate simply because her’s was a well-known author’s name, i.e. her name alone was worth $1.0 million even though she was dead. The IRS successfully postulated that future books could be ghost-written after her death using her name which would result in more book royalties for her heirs. Ms. Andrews’ estate ended up paying about $500,000 more in estate taxes on a phantom asset that she, or her estate, did not even know existed at the time of her death. The moral of the Andrews story is that intellectual property rights, like photograph or baseball card collections often are part of a decedent’s estate, yet those assets tend to be overlooked as assets of exceptional value.