Careful, That Trust Might be Patented!

"It's tough enough to figure out whether a complex tax strategy is right for you" writes Tom Herman in The Wall Street Journal, "let alone legal. Now there's something else to worry about: Getting sued by someone who has patented the technique."

It may sound surprising that tax and financial-planning ideas can be patented at all. They can, just like gadgets and other inventions. While the number of tax-related patents is still small, it appears to be growing -- and is attracting attention in Congress, at the Internal Revenue Service and among tax professionals facing increasingly intense competition for wealthy clients.

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Tax lawyers have been focusing more closely on the subject since a lawsuit was filed early this year against John Rowe, now executive chairman of Aetna Inc., in federal district court in Connecticut. According to the complaint, Dr. Rowe used an idea invented and patented by Robert C. Slane, who assigned the patent to Wealth Transfer Group LLC, of which he is a member.

The patent -- No. 6,567,790 -- involves transferring stock options to a "grantor-retained annuity trust." Typically, the goal of these trusts is to transfer appreciated assets to family members while minimizing gift and estate taxes. The complaint says Dr. Rowe had set up "one or more" of these trusts funded by nonqualified stock options in Aetna. The lawsuit asks for a permanent injunction barring Dr. Rowe from "infringing," or inducing others to infringe, on the patent. It also asks for damages and attorneys' fees, but doesn't specify how much.

For more on GRATs, including SOGRATs, and an interview with Robert C. Slane himself, see this Estate Analyst article.