Accounting For Intangible Assets When Estate Planning

When estate planning, one will immediately think about their tangible assets like property, businesses and other valuable items. What many forget to account for is their intangible assets: assets that lack physical substance but hold significant, measurable value.

Some examples of intangible assets include:

• Digital assets like cryptocurrency, online investment accounts, stocks, bonds, monetized social media accounts and digital photo or video collections.
• Intellectual property for creative or business works like copyrighted materials, patents and trademarks.
• Contracts and financial agreements like insurance, royalties, business contracts and other business interests.

In this blog post we will give you 4 tips on how to account for these intangible assets and ensure that they are just as secure as your tangible ones.

Tip #1: Make an Inventory

This tip speaks for itself. Make a list of every single tangible and intangible asset you have, even if you don’t think that it is relevant. Even things like subscription services should be accounted for because they may continue to take money out of your account after you have passed away. That money will accumulate and instead of going to your beneficiaries, it will go towards subscriptions that are no longer being used.

With an inventory, you know exactly what you need to account for in your will. Some intangible assets, like insurance policies, will likely already have beneficiaries attached to them. You should still bring these into consideration as you decide how to distribute your assets.

Tip #2: Establish a Trust

A Testamentary Trust is established through your will and takes effect after your death. This comes with a variety of benefits. Assets held in a Testamentary Trust are managed separately from your personal estate according to the trust’s instructions, giving you greater control over how they are distributed. This structure can help protect your IP and other assets from lawsuits, business liabilities and creditors that may arise against your beneficiaries. Holding shares and other income-generating assets in a Testamentary Trust also holds potential tax benefits. For example, income distributed to minor beneficiaries can be taxed at adult tax rates rather than the higher penalty rates that normally apply to minors’ unearned income.

Tip #3: Draft Specific Clauses

Never assume that intangible assets will automatically transfer to the beneficiaries of your tangible assets. Your will should include specific clauses that clearly address who inherits your IP, digital accounts and more. This is because many digital assets are subject to platform-specific terms of service that may restrict or complicate transfers upon death. You will need to review the policies of individual platforms to understand how each asset can be transferred or managed after your passing.

Tip #4: Choose the Right Executor

Your executor needs to be someone with enough digital literacy to know how to handle your intangible assets the way that you want them to. Since the executor is the one who is handing out the assets to beneficiaries, they need to understand the processes of changing ownership. They also need to understand the valuation of these intangible assets. Assets like digital currencies and stocks are susceptible to a change in value over time, and copyrights and patents may require a professional appraiser to estimate the future royalties that they will generate. Your executor needs to be aware of the immediate and potential valuation of your intangible assets so that they can distribute them accordingly.

Accounting for intangible assets can be a daunting process. Each may involve unique transfer requirements and considerations, and you may not know how to adequately account for them in your will. With the right legal advice, however, these hurdles can be overcome. If you have any questions about intangible assets for your or a loved one’s estate, please do not hesitate to contact us. We are here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.