As we examined previously, certain clients may intentionally or forgetfully skip certain information on assets in discussions with their advisors. Other clients may give wildly inaccurate estimates of the value of their assets. When it comes to intangible assets, however, it's not surprising that clients don't necessarily understand their market value.
Intangible assets can take the form of copyrights, patents, trademarks, royalty rights, the rights to publicity, and many more variations. Copyrights not only cover books and music, but works of art and computer software. Since some rights do not require formal applications to government agencies, the client may not be aware that they own them or that these assets have commercial value and thus potential implications for estate planning. As with many other examples of working with the affluent, the advanced planning team creating the comprehensive plan for the client needs to include a member with experience relevant to the client's situation--in this case, someone who understands intellectual property, such as a patent attorney, entertainment attorney, or software attorney.
The task of the team is to identify the intangible assets, determine the value, and create a strategy for their financial and tax management.
Case Study: Marilyn Monroe
The death of Marilyn Monroe in 1962 led to a pivotal case in post-mortem rights to publicity, and created unexpected estate planning consequences for many others with these valuable rights. It also demonstrates the potential interplay with the intangible rights of others and their descendants.
Monroe left the bulk of her estate to Lee Strasberg, the famous acting coach. At Strasberg's death two decades later, most of his estate went to this third wife Anna, who asserted her sole right to control the publicity of the actress's likeness and image, which still had commercial value.
In particular, she sued the corporations set up by the descendants of photographers who had used Monroe as a subject: Milton Greene, a Look magazine photographer, and Tom Kelley, Sr., who had taken a nude photo in 1949 that became the first Playboy centerfold. Strasberg claimed the corporations had no right to further exploit Monroe's likeness and image. Since the photographers and Strasberg herself sold images prior to the lawsuit, her main interest was preventing the use of photographs in ways that she didn't approve. Her son was quoted at the time as saying, "We don't want Marilyn on tampons...We don't want her on cigarettes."
The photographers' copyrights in the images did not preclude Strasberg's claim to rights to publicity, according to a court ruling, which determined that postmortem publicity rights and rights in an image itself were separate. In another case, Strasberg sued the heirs of another photographer, Sam Shaw, for the use of an image on T-shirts sold at Target stores. Shaw was best known for the photograph of Monroe standing on a New York subway grate with her dress billowing from the rush of air.
Courts in New York and California ultimately ruled against Strasberg. In response, however, the California legislature responded to a revision of the state Civil Code that Governor Schwarzenegger signed asserting rights to publicity even to those who died before the date of enactment, January 1, 1985. Those rights extent to their heirs as well.
In his analysis of the case, Mitchell Gans, a professor of tax law at Hofstra University School of Law, sees a potential problem of the rights of publicity accounted for in an estate exceeding the value of liquid assets. Legislators in California (and in New York, where a similar update is pending) need to make adjustments to account for the estate tax impact, according to Gans and co-authors Bridget Crawford & Jonathan Blattmachr, in "Postmortem Rights to Publicity: The Federal Estate Tax Consequences of New State Law Property Rights," (Yale Law Journal, Pocket Part 203; 2008). Until that time, advanced planning teams need to consider the estate impact of these rights when developing plans.
Types of Intangible Assets
Identifying a client's intangible assets may be obvious when he or she has kept good records and is devoted to a related career. When records are skimpy or the rights aren't related to current business interests or hobbies, the team will spend more time digging for details.
Copyrights. The creator of the work is generally considered the owner of the copyright. In fact, copyright protection exists even if the work isn't published or registered with the U.S. Copyright Office. Copyrighted works exist in many forms: paintings, published books, manuscripts, photographs, recordings, film, video, etc.
Copyrighted works may have commercial value even if they haven't been exploited at the time of creator's death. For a well-established writer, artist, or musician, the value of previously unknown works is understandable. In the case of undiscovered artists, unpublished works can also have serious value. The book Confederacy of Dunces by John Kennedy Toole only got published 11 years after the author's suicide when his mother found a smeared carbon copy of the manuscript. The book won the Pulitzer for fiction in 1981 and earned substantial royalties.
Patents. Your client may not have been a full time inventor, but he or she could own valuable patents as a result of a hobby or a career-related development. Most employers require the assignment of invention rights to them. Nevertheless, your client may still own patent rights that may need enforcement, even if there has been no commercial exploitation of them. For example, the owner of a manufacturing business may develop a new piece of machinery for use in his own facility, patent the invention, but not sell it to others.
Rights of Publicity. As demonstrated in the Marilyn Monroe case, the rights to publicity for well-known personalities lasts well beyond their death and can be quite valuable. Rights to publicity, however, are based on state law, so their full scope is not uniform. A client's image (photographically accurate or artistically interpreted), signature, name, or a voice may have commercial value. Old movie footage of John Wayne allowed the deceased actor's image to promote Coors beer (with the permission of his heirs). When Elvis died, his manager, Colonel Parker, supposedly replied to a question about Parker's future employment with "I'll just go right on managing him." The Colonel understood the power of postmortem rights.
Royalty Rights. An author with a popular book may continue to receive royalties many years after publication from the book's domestic and international publishers. In a similar way, ASCAP and BMI pay royalties to songwriters. An inventor who licensed his creation would expect to receive royalties based on that agreement that could extend beyond his death.
Trade Secrets. According to the Uniform Trade Secrets Act, a trade secret is a formula, pattern, compilation, program, device, method, technique, or process. Your client would need to derive independent economic value from a trade secret by the fact that it's not being generally known or to be readily ascertainable by others who could benefit from its use. Your client would also need to demonstrate efforts to maintain its secrecy. The formula for Coca-Cola is a well-protected trade secret, as is the technique used by a small bourbon distiller in Kentucky to toast the insides of the oak barrels where the beverage ages for many years. Most, but not all states, have adopted the Act.
Trademark and Service Mark Rights. If your client owns a business that uses a trademark ((TM)) or service mark (SM) on marketing materials or products, then this asset may have value in itself independent of the value of the enterprise. Getting approved for a trademark and service mark designations involves several layers of requirements. For example, a single work, such as a cookbook, cannot be trademarked, but a series of creative works may be eligible.