Passing on royalties after you die
Royalty payments are often earned from creative activities such as writing a book or composing music, but they can also be earned from a patent or brand licensing, or from a franchise or even licensing of mineral rights. While some arrangements may have a limited time frame, other income streams may be indefinite. If you derive some of your income from royalty payments, how should you deal with these in your will?
‘As with any asset, if your estate includes a right to receive income from royalties, you may pass these to whoever you choose in whatever way you choose,’ says Nigel Miller, a Director in the wills and probate team with Kidd & Spoor Solicitors Limited in Whitley Bay. ‘However, royalty income could continue for a considerable time, so passing a legacy of royalties is likely to require more consideration than a straightforward cash legacy.’
Leaving royalties under your will
The key things to consider are:
- How are the royalties earned?
- How much do you anticipate they will be worth?
- How long do you think they will generate income?
Evaluating the value and regularity of your royalties in the present may help you to predict their future worth. An industry expert could help you to predict the future of your royalties more accurately.
Knowing the value of your royalties means that you will have a greater idea of the level of income you will be gifting, and this might affect your decision as to who to leave your royalties. Perhaps a certain family member or friend would benefit more from a regular income than a one off capital payment.
How to leave royalties
Royalties can be gifted in a number of ways.
You may prefer to leave your royalties as an outright gift to one person, several people, or to a specific charity. J M Barrie’s generous gift to Great Ormond Street Hospital of the rights to Peter Pan in 1929 has provided a valuable source of income for the charity ever since.
Leaving any asset as an outright gift means that, once the estate is finalised and the asset parted with, your estate relinquishes all control. Your right to the royalties then becomes the property of the person (or entity) to whom they were left, and they could ultimately end up passing from them to someone entirely unrelated to you after they die.
A more suitable alternative could be to protect your royalties under a trust. A trust allows you to retain greater control over who receives the royalty income, both immediately after your death and for future generations. Trusts are, however, subject to very strict rules regarding their longevity so you should seek advice to ensure that your plans do not contravene the perpetuity rules.
If you have royalties to leave and you do not pass them by way of a specific gift, they will fall into the residue of your estate and pass accordingly.
Other factors to consider when leaving royalties
You may prefer for your royalties to pass to a charity, or to several charities, instead of any individuals. A charitable gift of this nature can allow you to create a longer lasting legacy, as a charity is likely to continue for longer than an individual’s lifespan. A charity may also publicise the legacy you leave.
If you have a variety of royalties from a number of sources, you do not have to leave them all in the same way to the same beneficiaries. For example, a musician with several albums may, for example, leave the royalties from one album to an individual and the royalties from another album to a charity.
Another highly significant consideration is that if you do not make a will at all, predetermined intestacy laws will decide who should benefit from your royalties after your death. This may not be the person, or people, you would otherwise choose.
How can we help?
An income from royalties can require more careful planning than many other assets and you should always seek advice before deciding to whom and how your royalties should pass. The only way to ensure that they pass according to your own wishes is to leave a well drafted and valid will.
If you receive income from royalties and are not sure how best to account for these when planning your legal legacy, our solicitors can guide you through the process and help you to make an informed decision as to how to leave this important asset.
For further information, please contact Nigel Miller, Philip Walker or Noel Dilks in the wills and probate team on 0191 2970011 or email email@example.com , firstname.lastname@example.org or email@example.com