Managing Your Royalty Income with Estate Planning

Artists, actors, writers and musicians are typically better known for their creative endeavors than for their focus on financial matters. And that's understandable, since money management can be especially complicated for creative people who have their minds set on production.

But creatives derive income not only from performances, appearances and sales of their work – they also earn residual income and royalties from their intellectual property and brand.

Estate planning that takes residual income and royalties into account is important — especially when it comes to avoiding disputes or setbacks in the future.

Here are some insights into managing these assets for the long term.

 

Why Is Estate Planning Important for Performers and Artists?

Estate planning helps protect the future earning potential for families of performers and artists after they die – by ensuring that their wealth transfers from one generation to the next in a timely, well organized and intentional manner.

Think of a celebrity like Prince or Aretha Franklin: both have significant ongoing revenue streams of royalties from their music and from licenses for the use of their images.

But while both of their estates have assets that provide ongoing streams of revenue today, neither Prince nor Aretha had a will or trust in place before their deaths. This caused their family members to spend a significant amount of time and money, both in and out of court, developing a plan for their respective estates after each had died.

"Too often we have seen clients pass away without completing or updating their estate plan, and as a result, the family loses its ability to control and ultimately benefit from valuable assets," said Chris Van Atta, a trust advisor with City National Bank.

It's fairly common for actors, musicians, artists and writers to work with a business manager once they reach a higher level of success. But it's less common for them to set up a comprehensive estate plan that usually requires a legal team and estate planning experts to work hand in hand with their business manager.

If they don't have a coordinated team, this can be a problem, said Van Atta..

When wealth is in the form of licenses, trademarks, copyrights and the royalties that intellectual property might generate, a comprehensive estate plan that includes a trust can incorporate those streams of income and benefit the artists and their families.

 

Creating a Trust

By placing specialty assets, like licenses, trademarks and copyrights into a trust, the generated royalty income can become part of that comprehensive plan that helps families mitigate taxes and access necessary resources.

“Estate planning is never simple, but when you add in the layer of artist royalties and an income stream from licensing agreements — or when someone has $20 million or more in assets, homes in multiple jurisdictions, art and boats — it's a lot to manage," said Van Atta.

When intellectual property rights and royalties are placed in a living trust instead of a will, the family may be able to avoid the hassle of mismanagement and possible will contests later on.

A trust also allows you to keep the estate value and beneficiaries' names and inheritances private, whereas a will is a public document. This is often important when creative people are well-known in their industry or even public figures.

 

Building a Team

Brand promotion is likely handled for the creative person by a single business manager – however, the management of intangible assets requires a team that includes, but is not limited to:

• your attorney
• a wealth advisor
• a trust expert

Combining estate planning with business planning can help preserve and grow an ongoing revenue stream for your heirs but also ensure greater peace of mind for those who work in creative fields and want to know their families will be taken care of in the long term.

“Attorneys and business managers often handle licensing and royalty arrangements, but they don't always coordinate or communicate regularly to ensure that the estate plan continues to meet the goals of the family," said Van Atta.

“If Elvis or his heirs had sold all the rights to his name, they would have lost out on a billion-dollar revenue stream. Estate planning offers an opportunity to address these potential intangible assets — as well as tangible assets — and put them in a trust to benefit your kids, a foundation or other heirs," he added.

 

Are You Ready To Manage Royalty Income?

Even with the right team behind you, managing the specifics of royalty income — with the larger strategy of estate planning in mind — will be difficult if you don't have the necessary tools.

Managing revenue from concert tour merchandise may seem straightforward, for instance. But keeping up with revenue from the countless t-shirts, posters, mugs and mousepads that bear the image of a mega-celebrity is not.

Tracking revenue and contracts with dozens of companies for hundreds of items is similar to running a million-dollar business.

Rights can be more complicated than the general public might think. Technology has helped families who struggle to stay connected to and in control of their large estates.

While some larger estates control all rights, it also is common for families to be a step removed from their estate. Even though they choose to work with an agency that manages the rights, they still might want to keep an eye on what's going on.

If one particular image sells far better than others, for instance, that image can be promoted in more locations and used on a broader range of items. Technology also can coordinate approvals of new product designs across the manufacturer, licensing agency, and the family or estate.

 

The Takeaway

Need to discuss your estate plan with an advisor or wish to find one? 

Whether you're a creative type or not, City National Bank can help. Get in touch with a City National advisor today.