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How Intellectual Property Assets Affect Estate Taxes

As intellectual property continues to grow as a wealth creation tool, individuals will be faced with the challenge of determining the value of the property, and the effect that such property will have on estate taxes.

Estate taxes on intellectual property, especially those based on copyrights, can have a substantial effect. When determining a person’s estate for purposes of estate taxes, it is first necessary to determine one’s gross estate. A person’s gross estate includes probate property and other tangible and intangible assets, such as retirement accounts or joint property. The current exemption for estate taxes is $2 million and will remain at this level through 2008. When valuing intellectual property for estate tax purposes, the taxable amount is generally accepted to be the fair market value of the intellectual property on the date of the creator’s death. Often, the taxes on a valuable piece of intellectual property in a decedent’s estate will be more than the available liquid assets or cash on hand to pay the estate tax. This often results in the estate being forced to sell some of the property in the estate to pay for the estate tax. Alternatively, the Internal Revenue Code does allow for tax payment deferment. This deferment period can allow an estate to take its time in determining how to pay the estate taxes, without being forced to make a hasty decision to sell estate property. Much of society’s wealth lies in intangible intellectual property. Valuation methods will vary by industry and type of intellectual property, be it copyright, trademark or patent. If you or your client’s estate is comprised largely of intellectual property, it may be necessary to contact an attorney experienced in intellectual property valuation and tax planning. Contacting the property advocate may save the estate a substantial amount in the form of taxes, allowing it to dispose of the rest of the property in accordance with the decedent’s wishes.