February 2015
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Doron M. Tisser
Doron M. Tisser is the founder of Tisser & Standing LLP and has been designated as both a Certified Specialist in Estate Planning, Trust and Probate Law as well as a Certified Specialist in Taxation Law by the State Bar of California Board of Legal Specialization. He has been selected as a Top 100 Super Lawyer in Southern California since 2011 and a Super Lawyer for Southern California Since 2009.
Brian H. Standing
Brian H. Standing is a partner of Tisser & Standing LLP and has received his designation as a Certified Specialist in Estate Planning, Trust and Probate Law by the California State Bar Board of Legal Specialization.


Intellectual Property and Estate Planning

Intellectual property (IP) is generally defined as patents, copyrights, trademarks and service marks. These assets often play an important role in estate planning, especially when they have significant value. Oftentimes, the value of a company is based on the IP and who owns it.


Generally, an individual registers a patent which leads to the creation of a product. If the product is commercially successful, wealth is created for the family. An important question is who owns the patent. If the patent is owned by the company, then the individual's ability to do creative estate planning may be limited.


If, instead, the patent is owned by the shareholder of the company, then he or she can license the use of the patent to the company. This allows the patent owner to receive licensing fees rather than salary from the corporation, which can result in income tax benefits. At the same time, if the company is sold, it may be possible for the patent owner to keep the patent and license it to the purchasing company.


It is also important to remember that most businesses are set up as corporations or limited liability companies in order to protect the owners' assets from potential lawsuits against the company. If the IP is owned by the company and the company is sued, there is the possibility that the IP could be lost to the creditor if other assets are insufficient to satisfy the judgment.


If the IP is owned by the shareholder of the company, the creditors of the company should not be able to get to the ownership of the IP. The licensing agreement between the patent owner and the company may provide that the agreement would be terminated if the company loses the lawsuit, thereby reducing the value of the company since it no longer has the right to use the patent. The shareholder is then free to license the patent to a new company or to a third party.


Another matter to consider with respect to IP is estate tax. The IP is an asset for estate tax purposes. If owned by the deceased shareholder, the IP has to be valued separately for estate tax purposes. If the IP is owned by the company, it is valued as part of the company. It is therefore important to look at the ownership of the company and what the possible estate tax ramifications will be.


One example of estate tax planning with IP is having it owned by the family within a separate entity. For example, father creates a patent and registers it through a limited liability company (LLC) he creates. Subsequently, he transfers ownership of some of the LLC to trusts for his children, with the father as the trustee. The LLC then licenses the use of the patent to the family owned business. By doing this, the only part of the IP that should be taxed when the father dies is his percentage ownership interest in the LLC, thereby reducing estate taxes on the IP.   A further benefit of this transaction is that the children's interests in the LLC are protected from their creditors and spouses and should not be subject to estate taxes when the children die if the trusts are set up properly.


Even if father wants to continue to own the patent in its entirety, it is important to transfer ownership to the family trust in order to avoid probate on the asset when the father dies.


Analyzing how a family's IP impacts estate tax, income tax, family succession and asset protection is an essential part of proper estate planning.

Tisser & Standing LLP | (818) 226-9125 | info@tisserlaw.com | http://www.tisserlaw.com
5425 Farralone Ave
Woodland Hills, CA 91367