This is Called IP for Short…
Patent, Copyright, Trademark, and Trade Secrets. All are forms of IP.
Writers deal mostly in copyright. That is what we license, but few writers know anything about what they license. And this post will not be a long, dull screed on copyright, I promise. In fact, it will be fairly short.
I want to deal with value of copyright is all. A simple topic, right?
Nope.
“Patents, trademarks and copyrights generally have associated costs and are usually capitalized as assets on the balance sheet.”
Oh, oh… So how do you figure the value of that asset when a copyright will last the life of the author plus 50 or 70 years depending on the country???
That is still a question in complete flux. Every judge, every business, every writer will work out their own method, based on some basic forms, of which there are four or twelve or however many depending on where you check.
So your copyright has value. And under certain circumstances, it even can be depreciated. You finish a novel, a short story, whatever, do you realize your story has value? Or are you one of those writers who thinks their work has no value?
In the entire Magic Bakery six-week workshop, I think I only talk for one or two videos about this growing issue of valuation.
Say you finished a short story and sold it to a magazine for $300. Is that the worth of the copyright of that story? Of course not. That story you still own rights to will remain in your control for your entire life and with your heirs 70 years past your death. Say that is at least 100 years.
See the problem? One appraiser might think your story is worth only $5,000 for all those years of possible value. Another might think it is worth $100,000 because movies might be made from it.
There is no set way yet of trying to figure out a copyright value.
“So what?”
You want the answer to that, go Google your state’s and US death tax laws. Over what amount do you have to pay tax on the value of your estate?
Then simply do the math. The stories will just be sitting in the file, not earning, but you get taxed on 70 years of possible future earnings for each story and novel. Your entire inventory has value that can be taxed in some way or another at your death.
Oh, oh…
Copyright is a property. Understand that.
You own it. It has value, no matter what you think of it.
Might be time to start understanding exactly what you own before you bankrupt you heirs.
Just saying.
This is a conversation I keep trying to have with my dad. No matter how many ways I explain it, he just cannot grasp the idea that my current IP potentially has more value than the maximum property for (US) death tax purposes. Just can’t get it. And he’s a songwriter! For him, copyright begins with registration and ends with “selling” the associated property. I’m seriously worried about tax liability for my son when my IP passes to him upon my death.
I would be a little concerned about your father’s estate, actually, if he is a selling songwriter. Songs have more set methods of being valued, but might want to make sure that is under control first. Song, especially selling song, can be worth a lot of money. Good luck.
He doesn’t sell them. I don’t know why. Possibly because he’s moved out of active performing into mentoring, although he does still write and he’s about to produce his second CD, I think.
I should’ve had a more serious talk with him about this years ago. Thanks for the reminder.
Never too late.
So, what’s the answer? How do you protect yourself and your IPs?
Not sure of your question, Kessie. No one is taking your IP. Just talking about the issues of the value of the IP. So not sure what you mean by “protect.”
Good estate planning can protect your heirs, if that is what you mean.
Two side comments on this:
You MUST have competent counsel to get this right for anything that looks like it might be even close to the estate-tax trigger… and by that I mean the whole estate (including the house, the family farm, the stock portfolio, the Caymen Islands accounts, etc.). And going to just a stiffs-and-gifts attorney is GUARANTEED to get you a wrong answer (there’s more than one wrong answer). Similarly, so is going only to an IP attorney. You’ve got to get them to talk to each other, and that’s much easier said than done. It doesn’t have to be particularly expensive, but it’s the old Fram Oil Filter commercial theory of legal counsel (those early 1970s commercials comparing the $3 Fram oil filter to the $800 cost of replacing the entire engine).
And one thing said above is slightly unclear: It’s not the total value over the entire life of the copyright that matters; it’s the net present value of the total value over the life of the copyright that matters. Naturally, that’s where one’s assumptions about inflation and future trends in the industry get REALLY interesting. My point is that the estate doesn’t get taxed on the total projected royalties out to life plus seventy; it gets taxed on the net present value of those royalties, which can be legitimately manipulated. Here’s an example with some numbers:
If one assumes that a certain e-book will earn $400 per year in revenues, and the author dies in 2018:
* On the scary straight-line total, that e-book would be “worth” $28,000 to the estate, and contribute that much to the basis for determining estate tax.
* If one assumes a 3% inflation rate and uses a standard NPV input — and I’ve never had either a probate court or the IRS object to this method, although sometimes one must tweak the inflation rate — good ol’ Excel’s NPV formula sets its “worth” as only $11,649.37.
Of course, it gets even more fun trying to justify that “$400 a year in revenues” when there’s been variance in the past, or still more fun for not-previously-published works or significant revisions…
Avoiding probate is a key strategy. As is avoiding inheritance taxes. Using trusts and LLCs, and setting them up before death, is the best way to avoid both.
James, trusts and LLCs will not help you avoid probate. And most certainly not an LLC. But how the property is handled, if done correctly in the trust, or the regular corporation (not an LLC) will help you in a probate situation. But you don’t avoid probate in many instances.
I foresee stratagems of devaluing IP or squirreling it away in LLCs. As long as corporations get taxed less than individuals, moving from DBA to LLC might be a necessary evil. (ANOTHER company to run. Really? REALLY? I truly do loathe the admin aspect of writing…)