For authors, poets, and anyone with creative, written works, literary rights are a special type of asset in an estate plan that must be dealt with in a very specific way. Properly addressing this type of intellectual property in an estate plan not only safeguards the creator’s legacy but also provides financial security for heirs. This article explores the importance of incorporating literary rights into estate planning, the legal framework governing these rights, and best practices for protecting and distributing intellectual property.
Understanding Literary Rights
Literary rights are a subset of intellectual property rights, granting the writer/creator control over their written works. These rights typically include:
- Copyright: The exclusive right to reproduce, distribute, perform, or display a literary work.
- Moral Rights: The right to attribution and the protection of the integrity of the work (recognized in some jurisdictions).
- Derivative Works: The right to create adaptations or modifications of the original work, such as turning a novel into a screenplay.
- Publishing Rights: The right to license or assign the work to publishers for distribution.
For estate planning purposes, these rights are considered assets and should be treated with the same care as physical property or financial investments; however, due to provisions in federal law, they must be passed on to heirs in a very specific manner.
Why Literary Rights Matter in Estate Planning
Failing to address literary rights in an estate plan can lead to disputes among heirs, loss of revenue, and the unintended misuse of the creator’s work. Proper estate planning can mitigate these risks and offer the following benefits:
- Protecting the Creator’s Legacy: Authors and their families often wish to preserve the integrity of their work. By specifying how the literary rights should be handled, an estate plan can ensure that the creator’s vision is respected.
- Providing Financial Benefits for Heirs: Literary works can continue to generate income long after the author’s death through royalties, licensing agreements, and derivative works. By designating heirs or a trust as the beneficiaries of these rights, the creator can provide a steady income stream for their loved ones.
- Avoiding Legal Disputes: Without a clear plan, disputes may arise among family members or third parties over who controls the literary rights. A well-crafted estate plan reduces the likelihood of such conflicts by clearly designating the beneficiaries and outlining their rights.
Key Considerations for Including Literary Rights in an Estate Plan
- Inventory of Literary Assets
The first step in incorporating literary rights into an estate plan is creating a comprehensive inventory of all intellectual property. This inventory should include:
- Published works
- Unpublished manuscripts
- Contracts and licensing agreements
- Copyright registrations
- Digital assets (e.g., websites, blogs, social media accounts related to the works)
- Valuation of Literary Assets
Determining the monetary value of literary rights can be challenging but is important for estate planning because it could cause a person to exceed the exclusion amounts for federal estate taxes. Engaging a professional appraiser or intellectual property attorney can help establish a fair market value for these assets.
- Choosing a Literary Executor
A literary executor is responsible for managing the creator’s intellectual property after their death. This individual should have a deep understanding of the literary world, as well as the business acumen to handle contracts, royalties, and negotiations.
- Establishing a Trust-Based Plan with Pour-Over Will
Creating a trust to hold assets can offer several advantages, including:
- Avoiding Probate: Trust assets are not subject to probate, ensuring a smoother and more private transfer of literary rights.
- Tax Benefits: Trusts can provide tax advantages, helping to preserve more of the estate’s value for the heirs.
- Ongoing Management: A trust can provide for the long-term management of literary rights, ensuring that the works continue to generate income and are used in accordance with the creator’s wishes.
- Reviewing and Updating the Estate Plan
As the creator’s career evolves, so too should their estate plan. Regularly reviewing and updating the plan ensures that new works, contracts, and changes in family dynamics are accounted for.
Legal Framework Governing Literary Rights
In the United States, literary rights are primarily governed by the Copyright Act of 1976, which provides authors with exclusive rights to their works for the duration of their life plus 70 years after their death. After this period, the works typically enter the public domain, unless specific arrangements are made to extend copyright protection (e.g., through corporate ownership). Internationally, literary rights are protected under the Berne Convention for the Protection of Literary and Artistic Works, which ensures that copyrights are recognized and enforced in member countries.
Best Practices for Transferring Literary Rights at Death or During Lifetime
Many assets can be transferred into a trust with a simple assignment of interest, however passing literary rights on to heirs is a little trickier. Because the future value of a copyright is impossible for the author of a work to know at any given point in time, copyright law gives the author the right to terminate most lifetime transfers or licenses of the copyright at a future date, providing the author with an opportunity to market the work once its fair value is known.
This termination right, which passes by law to the author’s surviving spouse and children when the author dies, cannot be waived or transferred to anyone else during the author’s life. Therefore, if the author were to transfer the copyright to a trust, for example, the statutory heirs could undo the author’s intent and essentially do whatever they want with the intellectual property. There is an exception however: a transfer of the copyright by Will. This type of transfer cannot be terminated by the author’s heirs later. Although establishing a trust is preferable for many other types of property to avoid probate proceedings, a Will should typically be used to transfer copyrights to beneficiaries to avoid possible termination of the transfer by the heirs. In the case of a person with a trust-based estate plan, a Pour-Over Will suits this purpose.
In addition to transferring a copyright by Will, a client could also consider transferring a copyright by lifetime gift. Although a transfer by lifetime gift is the simplest of the copyright transfer strategies, there are drawbacks; a gift made during the author’s lifetime may fail to exclude substantial appreciation in the value of the copyright from the author’s taxable estate due to potential estate inclusion issues connected to the author’s termination right.
A gift of a copyright prevents the copyright from qualifying as a capital asset because the recipient adopts the transferor’s basis for income tax purposes. On the other hand, if the author dies with the copyright in the author’s taxable estate, the copyright receives a stepped-up basis equal to the fair market value at the author’s death or alternate valuation date, and it automatically qualifies as a capital asset that has been held for over a year. This essentially means it is often preferable tax-wise to receive this type of asset as an inheritance after death rather than a lifetime gift.
Protecting Creativity for Future Generations
Incorporating literary rights into an estate plan is essential for authors and creatives who wish to preserve their legacy, protect their works, and provide for their heirs. By carefully inventorying assets, appointing a knowledgeable literary executor, and utilizing Trusts, Wills, and other legal tools, creators can ensure that their intellectual property and other assets are managed in accordance with their wishes and in the most tax beneficial manner possible. For guidance on how to incorporate literary rights into your estate plan, consider a consultation with an attorney at Vermillion Law. With the right planning, your creative legacy can continue to thrive for generations to come.