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Saturday, May 4, 2024
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Case Studies |
Ducky Don and the Trademark Unitrust
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Case:
Donald Holden Ducksworth III (Ducky Don to friends) was a lifelong outdoorsman. He loved to hunt and fish. Each fall, Ducky Don and his friends would gather for the opening of duck hunting season. While still in his 20s, Ducky Don started experimenting with duck decoys. He felt that a better duck decoy would lead to more successful hunts. Ducky Don finally discovered a method for placing a spring and special pivot under the ducks. His duck decoys would all swivel and wobble in the wind. The ducks flying overhead would see a whole flock of duck wobblers and would swoop in to join the group.
Ducky Don started a company to produce the wobbling ducks. While the market is somewhat specialized for duck decoys, Don became well known in his area and thousands of wobbling ducks soon decorated the surrounding fields.
Many years later, he produced an improved version of the Wobble Duck. To protect his invention, Ducky Don personally obtained a patent on the Wobble Duck. He then licensed the patent to his company and received annual royalties. After 10 more years with flocks of duck decoys wobbling in the wind, Ducky Don finally decided to retire. He sold the patent and the assets of Wobble Ducks to MegaDecoy Company. But Don also created a logo with a drawing of the Wobble Duck and a large WD. He registered the trademark in the Principal Register of the Patent and Trademark Office.
Question:
MegaDecoy would like to buy the Wobble Ducks trademark. Can this be done? Could Don sell tax-free and also receive a deduction?
Solution:
A trademark is a capital asset. Don discussed options with his attorney. Since he had not yet signed a sales contract with MegaDecoy, Don could transfer his trademark to a unitrust, which could then sell it tax-free. His attorney promptly drafted the trust and the documents of transfer, and Don funded the unitrust. Since MegaDecoy did not want Don to sell the trademark to competitor MiniDecoy, Inc., it paid a substantial amount in cash to the unitrust for the Wobble Ducks trademark.
With a gift of a capital asset, Don received a charitable deduction, based upon his age, the payout rate and the Applicable Federal Rate. The sale of the trademark bypassed the capital gain, and Don also was able to take his appreciated property deduction over the next three years. Don is now sailing into the sunset with a Wobble Duck on the prow of his bass boat.
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