Estate planning is often associated with creating a roadmap to transferring your property and assets to your family, as well as creating tax advantages when possible. When creating an inventory of your property and assets, you’ll typically think of common types such as real estate, investments, financial accounts, and personal property. A second category of property is one that you can’t see, feel, or touch, meaning that they’re easier to forget about. With this guide, you’ll gain a better understanding of what types of intangible assets you may own or have rights to. Keep reading to find out if you own intangible assets, whether they go through probate, and your options for transferring them to loved ones through your estate plan.
What are intangible assets?
Intangible assets are a class of personal or shared property that lack a physical presence but possess value and represent valuable rights or privileges. Unlike tangible assets that can be touched or seen, intangible assets are more abstract and typically relate to intellectual or legal rights. Here are some common examples of intangible assets:
Intellectual property (IP): This includes copyrights, patents, trademarks, and trade secrets, which protect creations of the mind, inventions, brand names, logos, and confidential business information.
Goodwill: Goodwill represents the reputation, customer loyalty, and positive brand recognition associated with a business. It encompasses the value derived from factors like customer relationships, brand image, and business relationships.
Brands and trademarks: Brands and trademarks are distinctive symbols, names, logos, or phrases that differentiate products or services in the marketplace. They can hold significant value due to their association with quality, reputation, and customer trust. Great examples include the Nike “Swoosh” logo, or the Patagonia label, for instance.
Software and computer programs: Software applications, computer programs, and algorithms can be intangible assets that have commercial value and contribute to a company's operations or products.
Customer lists and relationships: Accumulated customer lists and strong customer relationships can be valuable intangible assets, representing a source of future revenue and business growth potential.
Contracts and licenses: Contracts, licenses, and agreements that grant exclusive rights, permissions, or access to resources, technology, or markets can be considered intangible assets.
Domain names and websites: Domain names and established websites can hold value as intangible assets, particularly if they have high traffic, a strong online presence, or valuable content.
Intangible assets are both significant and omnipresent in today's knowledge-based economy, where innovation, intellectual capital, and brand recognition play crucial roles in business success. That’s why it’s important for both individuals and businesses to be careful to plan the succession of their intellectual property.
Are intangible assets probate assets?
Intangible assets can be probate assets, but it depends on your specific circumstances and any applicable laws.
Intangible assets are treated as property, and will pass through probate similarly to any other type of property. For example, if the ownership of intellectual property (such as copyrights, patents, or trademarks) is solely in the name of the deceased person, those assets may need to go through probate before they can be transferred to the designated beneficiaries.
However, it's important to note that not all intangible assets are necessarily probate assets. Some intangible assets may pass outside of probate, such as when a transfer agreement was made during the creator or owner's lifetime. In another example , if a person creates a Trust and transfers their assets to the Trust, then those assets may not be subject to probate. They would instead be distributed according to the terms of the Trust.
Estate planning tips for intangible assets
Whether you're an inventor, musician, songwriter, author, artist, or any other kind of creative individual, you likely have intangible assets that you’d like to protect and pass on to your family.
By implementing effective strategies, you can safeguard both your own rights and your family's ongoing ownership of your intellectual property. When done correctly, you may even be able to avoid the probate process.
That's where proper estate planning comes into play. Just like any other valuable asset, intangible assets can be included as part of your estate plan. It's essential to plan ahead in order to protect your rights and ensure that your family continues to benefit from these special assets.
The following will go over patents, copyright, and trademarks — common types of intangible assets — along with some ideas on how to protect them via your estate plan.
Registered patents grant you the exclusive right for your invention, whether it's a new product, a unique process, or a fresh solution to a problem. According to the US Patents and Trademarks Office (USPTO), you can transfer ownership of a patent by executing an assignment agreement, allowing you to sell or assign it to another individual or entity. Once the transfer is complete, all rights and interests in the patent are given to the other party.
If your patent is solely in your name and you don’t have an assignment agreement in place, the patent will likely go through the probate process when you pass away. Your Personal Representative will be assigned with the duty of dealing with the probate court and Patent Office to ensure that the patent can be transferred to your heir(s).
Alternatively, you can transfer your patent to a Trust before you pass away. This allows your Trustee to handle any patent-related matters outside of the probate process. Taking this proactive approach allows you to make sure that proper control and management of your patents is maintained, even after you pass away. Further, you can be sure that your beneficiaries will receive the future income from your patents that they’re entitled to, without leaving it up to the court system.
When we talk about copyrights, we're referring to the exclusive legal right that's given to the creator or assignee to print, publish, perform, film, or record literary, artistic, or musical material. This right also allows you to authorize others to do the same.
According to the USPTO, any copyright-eligible works created on or after January 1, 1978, are protected for 70 years after the author's death.
The good news is that copyrights can be passed on to your heirs as part of your estate plan. They don’t automatically expire alongside the creator’s death. Instead, it is transferred to their heir or other designated beneficiary through the owner’s estate. This means that your beneficiaries or heirs will be entitled to receive future profits generated by the copyrighted works. Further, if you have a Will or Trust, you can provide specific stipulations regarding how you want your work to be used after you pass away.
Be sure to review our guide on Copyright After Death to learn more about important factors to consider with regards to planning your estate and ensuring that your legacy is protected while also making your wishes known.
When we talk about trademarks, we're referring to words, phrases, symbols, designs, logos, or combinations of these elements that distinguish one business from another. Essentially, it's how customers recognize and identify you in the marketplace. Think of iconic logos like Nike, Apple, and Amazon – they're easily recognizable and instantly associated with their respective brands.
When it comes to dealing with your trademark and planning for its future after your passing, things can get a bit more complex. To transfer a registered trademark through your estate, your Personal Representative needs to take specific steps, such as assigning the trademark along with the goodwill it carries. If this process isn't handled correctly, there's a risk that the trademark won't transfer to the intended beneficiaries and may even expire.
That's why it's generally better for a business entity to own a trademark rather than an individual. If a business owns a registered trademark, it will continue to hold ownership even after the owner's death.
If you have a small business, such as an LLC or single-member LLC, it’s still possible to incorporate both your trademark and your business into your estate plan. For instance, you could consider transferring your trademark (if it’s in your name) to a Trust and then designate the LLC as the successor Trustee. However, you should always be careful to have a succession plan for your business in place if you wish for your business and its assets to continue on after your passing.
Do businesses and LLCs pass through probate?
Businesses, such as a Limited Liability Company (LLC), typically do not pass through probate in the same manner as personal assets. This is because businesses are separate legal entities from their owners. Even if the owner or key member passes away, they can in theory continue on and operate thereafter.
Here, you may be wondering, “what if the business is operated by one person?” Especially in today’s economy, single-owner operations such as Sole Proprietorships or Single-member LLCs are not uncommon. Know that it is possible to transfer the ownership of your business seamlessly without having to go through the probate process. For instance, you can put a carefully crafted succession plan or operating agreement in place, along with an iron-clad estate plan.
For Sole Proprietorships, the owner and the business are still considered as one legal entity. Thus, any business assets and liabilities are still part of the owner’s estate. If you wish to bypass probate, you should ensure that your assets are transferred to a Trust. Some states allow small estates to conduct an expedited probate process.
In the case of partnerships and LLCs, the transfer of ownership depends on the terms outlined in the partnership or operating agreement. If this applies to you, you should be careful to specify what should happen in the case of a death of an owner or partner, including provisions for how your ownership interests and business assets should be transferred or distributed. So long as you do so correctly, the transition can happen outside of probate.
One possible exception is the single-member LLC. In many states, similar to Single Proprietorships, the business assets are considered part of the owner’s personal estate. In this case, the LLC assets will generally pass through probate according to the owner’s Will. Alternatively, intestate succession laws will be applied if there is no Will available.
In other states, the transfer of business assets upon the owner’s death can be dictated by the provisions of an operating agreement. Some states also allow a single-member LLC owner to designate a successor or provide a Transfer-on-Death provision (TOD), allowing the business and its assets to transfer to another individual or entity outside of probate.
Bottom line, if you own a business of any sort, it is critical that you understand your state laws. First it’s helpful to understand what will happen if you were to pass away in the absence of operating agreements, provisions, or an estate plan. Then, understand what options are available to you. Regardless of where you live, the best practice is to have an operating agreement, succession plan, and a Will in place so that you get a voice in what should happen to your business when you pass away. If you and your business are considered one legal entity in your state, then also consider the use of a Trust to remove assets (including intangible assets) from your estate and bypass the probate process.
Decide what should happen after you pass away
Intangible assets are a highly valued part of our economy that spurs innovation and healthy competition. Whether you’re a creative, engineer, or entrepreneur, your intellectual property may not be something you can physically touch but a valuable part of your legacy nonetheless. Further, your intangible property could be something that creates value for your loved ones for generations to come, provided that you properly safeguard it.
That’s why proper estate planning will help you control what should happen to your intangible assets after you pass away. This guide introduced common types of intangible assets such as copyright and trademarks and what typically happens to them when an owner or creator passes away. We also introduced several estate planning tips, such as how to avoid probate or ensure the seamless transfer of ownership when you pass away.
If your intangible assets are held within your business entity, be sure to understand your state laws regarding the treatment of businesses in the event of the owner’s death. In some cases, your business could be treated as a part of your personal estate (if you are the single owner). In other cases, you and your business are treated separately, thus allowing you to transfer assets through an operating agreement. Regardless of the circumstances, it is critical that you understand the potential outcomes and plan proactively. In all cases, however, you should ensure that you have an estate plan in place to ensure the proper protection of your assets. For instance, transferring your assets to a Trust is a popular, legal mechanism for bypassing probate estate and minimizing taxes.
For additional support regarding the probate process, be sure to check out Trust & Will’s Probate! It’s a service that was designed with someone like you in mind, so that you don’t have to navigate the complex process alone. Find out what it might feel like to navigate probate with support every step of the way.
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