Estate Planning Considerations for Intellectual Property and Digital Assets
By Kristin M. Tyler< Back to View All Publications
The last 25 years have produced some amazing and mind boggling inventions: spy drones, plasma TVs, hybrid cars, DVR, smart phones, e-books, GPS, text messaging, Wi-Fi, seedless watermelon and of course, Candy Crush. As these inventions continue to expand and evolve, as do the intellectual property rights associated with them. In 2012, the U.S. Commerce Department released a comprehensive report, which found that intellectual property intensive industries support at least 40 million jobs, and contribute more than $5 trillion dollars to the U.S. economy or 34.8 percent of gross domestic product. U.S. Commerce Dep’t, Intellectual Prop. and U.S. Econ.: Indus. in Focus., Mar. 2012, available at this link.
In today’s digital age, the traditional approach to estate planning for “brick and mortar” type assets is no longer sufficient. When crafting an estate plan for creative clients, such as a musicians, artists, inventors or entertainers, one must consider the planning implications of their intellectual property or digital assets in addition to the more traditional asset classes, i.e., real estate, financial accounts, and personal property.
Intellectual property involves “creations of the mind” and includes, among other things, copyrights, patents and trademarks. IP rights are intangible personal property rights and must be separately addressed in an estate plan. Most wills and trusts address the transfer of tangible personal property separately from the residue of the estate. Without specifically addressing IP rights separately as intangible personal property, those IP rights may end up passing pursuant to the terms for the residue of the estate.
When considering IP in relation to an estate plan, the first step is to value those IP assets. An independent valuation expert well versed in valuing IP may be required to get an accurate estimate of value, which generally includes a variety of factors such as the length of ownership as a metric.
Copyrights provide a bundle of rights and protections to owners of artistic creations, such as books, music, paintings, sculptures, movies, choreography, architecture, and computer software. In most cases, copyrights last for the author’s life plus 70 years for any creative works made on or after January 1, 1978, and are not subject to renewal registrations.
Patents, when issued, grant inventors the right to exclude others from making, using, offering for sale, or selling the inventions that are novel, useful and non-obvious. The length of a patent depends on the type of item being protected and ranges from 14-20 years. Once a patent expires, it cannot be renewed and, generally speaking, the underlying subject of the patent goes into the public domain.
Trademarks include names, slogans, logos and other identifying characteristics of a good or service and, when and if used first in commerce, provide owners with exclusive rights to the trademark in connection with the corresponding goods and services. Trademarks can last indefinitely so long as the owner continues to use the mark.
IP rights can be gifted during life or transferred upon death. Accurately valuing IP for gifts during one’s life is extremely important due to potential gift tax implications. However, many IP owners may not be willing to transfer their rights during their life as they need to maintain them for on-going business purposes.
Without an estate plan, IP rights will pass upon the owner’s death via the laws of intestate succession just like any other asset. An estate plan allows an IP owner to avoid intestate succession and to decide how and when to transfer ownership rights to a beneficiary. Thoughtful consideration in which beneficiaries are best suited to manage and benefit from inheriting certain IP rights is imperative. Careful thought should also be given to appointing trusted fiduciaries to act on behalf of the IP owner in the event the owner becomes incapacitated during his or her life.
IP rights can be transferred to and held by a trust. If certain IP is actively used in connection with an enterprise, a separate business entity, which is ultimately owed by a trust, can hold that IP in order to mitigate liability and to avoid probate. An IP owner can bifurcate the IP rights by designating one beneficiary to control all creative decisions, such as the ability to create derivative works, while leaving the remaining IP rights with second beneficiary or class of beneficiaries.
What are digital assets and digital accounts?
There is no uniform definition for digital assets or digital accounts, in part due to the ever-developing and expanding field of technology. One source defines digital assets as emails, electronic documents, images, and audio/video files stored on digital devices like desktops, laptops, tablets, and cell phones, regardless of the ownership of the physical device in which the digital assets are stored. Evan Carroll, Digital Assets: A Clearer Definition, Digital Est. Resource, Jan. 30, 2012, available at this link.
Digital accounts are generally defined as email accounts, software licenses, social networking and media accounts, file sharing accounts, online banking, shopping and bill-payment accounts, domain registration and name service accounts, and even virtual businesses. In short, digital assets are “the files” whereas digital accounts are “access rights to [those] files.” Id.
Examples of digital assets and accounts include: photographs; videos; music playlists; social interactions on Facebook, Twitter and email accounts; PayPal accounts; customer addresses; and even patient information.
Why planning for digital assets is important
Digital assets have value, not only commercial, but sentimental. Without proper planning, these assets will likely be terminated and forever lost upon the owner’s death. For instance, would you mind if your thousands of photos uploaded to Facebook, Instagram, Flickr, or on a networking cloud were permanently deleted? Or how would you feel if your thousands of blog (or micro blog) followers lost access to your thoughts and articles? Or what about that popular domain name you secured for pennies on the dollar, or your beloved iTunes music folders and e-books?
Digital asset planning addresses both financial and non-financial considerations, including, tax and copyright implications, genealogical accounts, and one’s legacy.
Nevada law – decedent’s digital assets and digital accounts
NRS 143.188 gives a personal representative of an estate only the “power to direct the termination of any account of the decent,” including accounts on any of the following websites: social networks, blogs, microblogs, text messaging services, emails, and “[a]ny similar electronic or digital asset of the decedent.” Nev. Rev. Stat. §§ 143.188(1)(a) & (b). Nevada law does not authorize a decedent’s personal representative, absent language in a decedent’s will or court order, to take control of, conduct, or to continue servicing any of the digital assets. This limitation is due, in large part, to unresolved privacy and deceit related issues addressed by the Nevada legislature. See S.B. 131, 77th Leg. (Nev. 2013) (statements of Chmn. Frierson, May 13, 2013).
The statute raises additional planning concerns because it does not invalidate agreements decedents execute with services providers like Yahoo!, Facebook or Google. Nev. Rev. Stat. § 143.188(3). This can be problematic because many of these agreements terminate upon the death of the user, providing no right of survivorship or transferability, whereas others merely restrict family members’ access while not deleting the digital account at all.
Necessary steps to protect digital assets upon death
To ensure that digital assets are preserved and easily accessed, here are a few helpful tips:
- Consolidation. Every person has, on average, 20-25 digital accounts. See S.B. 131, 77th Leg. (Nev. 2013) (statements of B. Hall, May 13, 2013). Simplify the digital estate by consolidating these accounts.
- Digital asset inventory. Make a private list of user names and passwords, and constantly update that list. To ensure the list does not become public record, do not incorporate it into the will. Alternatively, consider a Digital Asset Trust to preclude public dissemination of your digital assets, and to designate how your digital assets (e.g., online businesses, blogs or microblogs) are maintained.
- Designate a digital asset executor or personal representative. A digital asset executor or a personal representative should be someone you trust, who is tech-savvy and who can easily find and access your accounts. Choosing an appropriate person to access (or terminate) your digital accounts can ensure the privacy of certain information and to prevent any secrets from becoming public.
- Preemptive planning. Because user agreements executed with service providers generally govern pursuant to state statute, an estate planning attorney should preemptively work with their client to ensure any digital assets are preserved or properly disposed upon the user’s death.
A well-drafted digital asset plan will also address any steps the executor or personal representative must take when managing these digital assets. Such a plan will help to secure the decedent’s financial and personal privacy, and help to maintain the overall commercial image and impression of the decedent’s online business or blog. Without a digital asset plan, those assets are likely to pass as part of the residuary estate and into the hands of someone the decedent may not trust.
There are many online, digital estate planning tools that help to aggregate, organize and preserve digital assets by allowing the user (and their family in the event of death) to access and manage digital accounts at any time. However, determining the disposition of digital assets through a will and/or a trust as opposed to an online storage account is strongly advised.
In the realm of the digital age, the landscape of estate planning is constantly changing. There remain unresolved issues pertaining to intellectual property and digital asset planning, including, the interaction between federal and state law governing online bank accounts and businesses, service-provider user agreements, privacy concerns, and even the disposition of one’s intangible property. In fact, the Uniform Law Commission, a non-profit unincorporated association that provides states with “non-partisan” legislation, created a committee to study issues relating to digital asset planning to develop a set of uniform laws, i.e., the Fiduciary Access to Digital Assets Model Act. About the ULC, Uniform L. Commission, http://www.uniformlaws.org/ (last visited Apr. 1, 2014); Committees: Fiduciary Access to Digital Assets, Uniform L. Commission, http://www.uniformlaws.org/Committee.aspx?title=Fiduciary+Access+to+Digital+Assets (last visited Apr. 1, 2014). However, the Act is not expected to be finalized for another few years. In short, working with an estate planning attorney well versed in both traditional estate planning tactics as well as modern-day planning strategies in the digital age is critical.
KRISTIN M. TYLER and ELIAS P. GEORGE are associates with the law firm of Gordon Silver. Kristin practices in the areas of estate and business planning, business formation, charitable giving, asset protection planning, probate and guardianship. As a member of the firm’s Intellectual Property and Entertainment & Sports Departments, Elias focuses on registering and policing trademarks, including responding to inquiries and objections issued by the United States Patent and Trademark Office and working with businesses and entrepreneurs to protect their marks. They can be reached at (702) 796-5555 or by email: email@example.com or firstname.lastname@example.org.