Ask a Probate Lawyer: How Do I Bequeath Royalties
Usually, final bequests are fairly routine matters that can be dispatched by executing a will. However, the more expansive or complicated your estate, the more you need an experienced probate lawyer to help tie up any legal loose ends.
One such complication comes from handing down assets like intellectual property rights and the revenues they generate. A copyright is good for 70 years after the death of the creator, but what happens to the income it generates? Most inventors, writers, and brands want to ensure that their assets pass on to heirs as part of their estates.
If you’re a resident, establishing a guardianship in Las Vegas is one option to ensure that your bequest is honored. However, there could be several other considerations and steps involved when it comes to bequeathing ongoing disbursements like royalties.
Which Assets Are Considered Royalties?
Simply put, royalties are any monies paid by a third party to an individual or brand for ongoing use of their assets per a legal agreement regarding such use. For example, the songwriter of record will receive a certain percentage of revenues gained whenever their song is recorded, played, or performed live in a commercial setting.
The amount of passive income gained and designated payee(s) depend on the terms of the agreement between the creator or legal owner of the works and the licensing agent. That agent could be a publishing company, a record executive, or the government.
Normally, people think of royalties in terms of residual income from songs or other works that fall under the definition of intellectual property. While most of these types of disbursements are generated by intellectual property, that is not the only source of revenue from royalties.
In addition to residual payments from creative endeavors like book authorship and songwriting, royalties are generated from other business ventures like:
• Patents and trademarks
• Brand licensing
• Mineral rights
The terms and methods of payment depend on the details outlined in the original agreement. In the case of songs or other forms of authorship, a percentage of the gross or net profits is routinely paid each time a book is sold, or a work is performed. Patent royalties are paid to inventors or patent holders for future use of their intellectual property.
Mineral rights will be paid on a quarterly or annual basis to the property owner, but they could be transferred to any heirs in perpetuity. That means for as long as a resource, such as natural gas, can be extracted from a property owned by the person(s) named in the agreement. If the property is sold, the resource is depleted, or it is no longer needed by the third party, the licensing agreement could terminate.
There are several considerations to ensure that your royalties pass on to your designated heirs. For example, the estimated future worth could have tax implications for your heirs.
Another consideration is how the asset is licensed. It isn’t enough to designate future earnings for your spouse or children if the terms of your original licensing agreement end with your demise. In that case, any future royalties could convert back to the other party, such as your record company or agent.
It’s important for your probate attorney to look over any agreements before you sign them and update your estate planning documentation each time you produce new works or experience a major life change like marriage, divorce, or having children.
Make sure that your licensing agreement transfers ownership of residuals and annual payments to your heirs in accordance with your wishes before signing anything. If you’re not yet married or have children, the terminology could state something like “all future legal heirs.”
Setting Up an Iron-Clad Royalty Bequest
The first thing your estate planning attorney in Las Vegas will want to do is determine the future value of your intellectual property. That will help determine if the asset can be safely passed through your last will and testament, bequeathed as a gift outright, or protected via a trust. Will your heirs benefit more from a lump sum payment or ongoing disbursements on a regular basis?
There is no gift tax in the state of Nevada, but the federal government will assess a tax on any bequest valued higher than $16,000 per person, per bequest.
Your probate attorney in Las Vegas can tell you that leaving royalties to your heirs in a will only concerns the transfer of that asset to your designated heir. After your death, it becomes their legal property and can be managed however they see fit.
If you want more granular control over how your asset is managed and who owns it beyond your lifetime, the best method is to establish a trust.
Wills only detail what assets you own and who you would like to have specific items. It doesn’t add any special instructions or determine what happens to those assets once they’re out of your hands.
There are very strict rules concerning the establishment of trusts, and there are different types of trusts. Revocable trusts could be dissolved by the successor trustee upon your death, while irrevocable trusts cannot be broken, dissolved, or changed.
It’s also important that your trust is created following perpetuity rules put in place by the terms of your original licensing agreement, patent, trademark, or copyright. Your probate lawyer in Las Vegas can provide further guidance on that matter as well.
Another good thing about establishing a trust to manage your assets is that you can portion out future earnings and designate how they are used. If you want to place conditions, such as finishing college, on a bequest, a trust is the way to go.
Leaving all, or a portion of, your future earnings to a charity or nonprofit is also done by establishing a trust. For example, Dorothy Parker left the legal rights and assets from her estate to the NAACP. J.M. Barrie, the creator of “Peter Pan,” bequeathed the rights to his works to the Great Ormond Street Hospital in 1929. That institution still benefits from his generosity to this day.
In short, you should protect any asset you want that to bequeath to future generations by designating an heir when your draw up the licensing agreement, when you experience a major life event, and when executing a will or establishing a trust.
Doing so with the guidance and advice of a knowledgeable estate planning attorney is essential.
Finding a Licensed Probate Lawyer Protects Your Assets
No matter how hands-on you are about business and estate planning matters, it’s still necessary to engage a seasoned probate lawyer to ensure that your last wishes are honored. That’s the best way to ensure that your assets are protected throughout your lifetime and beyond.