The artist formally known as Prince is associated with creativity and excellence for his music and performances. Now his name is associated with excess taxes and chaotic management of his estate. Prince died in 2017 without a will or even a list of his assets. And now the IRS is challenging the $82 million valuation of his estate, which includes the rights to his music and his recordings, claiming a value of $163 million, and asking for an additional $38.7 million in taxes, thank you very much. The estate is cash strapped, and who knows how they are going to pay the additional taxes, plus penalties and interest?
Although Prince is an extreme example of not doing any estate planning, ignoring the decedent’s ownership of copyrights, patents and other intellectual property is not uncommon. Many people think this is only a concern of celebrities, but in this day and age when a YouTube video can go viral or an internet domain name can mean the difference between fame and obscurity, everyone has some intellectual property rights. As such, everyone should consider how those rights are managed during their lifetime and after their death.
Intellectual property (IP) rights are divided into two types by the World Intellectual Property Organization—industrial property rights and copyrights. Industrial property rights include patents, trademarks and service marks, designs and locations. Copyrights cover artistic works and reproductions, broadcasts and recordings of those works.
The two types blur together as a person can have both a copyright and a patent on the same idea. Both are the intellectual creation or one or more individuals, in contrast to the physical or electronic object that intellectual creation embodies. Copyrights, patents, trademarks and other Intellectual property laws protects the creator(s) value in their ideas by restricting and controlling who benefits from the control and reproduction of the physical or electronic object.
Copyrights apply automatically to original works of authorship that are fixed in some medium where they can be reproduced or communicated either directly or via some device. Although automatic, copyrights can only be enforced after registration with the U.S. Copyright Office. The use of © as a copyright symbol or the words “all rights reserved” are no longer necessary to enforce a copyright.
Once registered, copyrights are good for the lifetime of the author, plus 70 years (or lifetime of the last surviving co-creators plus 70 years). Copyrights on works made for hire or published anonymously last for a term of 95 years from publication, or 120 years from creation.
Copyrights, as the right to control and reproduce something, are separate from the physical object itself. An artist or an author can sell a piece of art or a writer can gift a manuscript to another but retain the copyrights. In the past, creators have sold copyrights to others at a small fraction of the true value of the IP asset.
Since 1976, the creator has the right to terminate the transfer of the copyright but that transfer must occur within 40 years of the transfer, or 35 years after the first publication. Because this right of termination is not transferrable except by a specific reference to the right in the creator’s will, if a creator dies before the termination time has expired, the right of termination goes to the creator’s intestate heirs, and not according to their will or trust.
Industry IP is regulated under different rules. Unlike copyrights, they are not automatic. And you lose the right to the IP if you make and sell an object before filing for a patent or if you wait so long that someone else files before you. Also, industry IP needs to be maintained, documents filed and fees paid to establish and maintain those rights.
Estate planning for IP requires that those rights are properly transferred, either during life or (like the right of termination) at death. This involves cataloging and valuing the IP, and determining who has existing rights in the IP. This can vary depending on whether it is classified as a copyright or industry right. IP rights cannot be transferred by a transfer of the physical object, such as a work of art. The result is that one person may own the right to the artwork but the remainder beneficiaries of the estate own the copyrights to reproduce the artwork.