A royalty is the right to receive financial compensation for a body of work that is used by a third party. Common examples include songs played on the radio or packaged for sale, television advertisements, and books or articles sold. If the person who holds the right to receive royalty compensation wants to pass those rights at death, it is important to make such arrangements. A living trust is a common way to do so. Transferring assets into a living trust, a process called “funding,” is necessary for the assets to pass under the terms of the trust document.
The Importance of Avoiding Probate
Perhaps the most important reason to create a living trust is to avoid probate. Probate is the process of distributing a deceased person’s assets through the court system. Probate can be an expensive and time-consuming process, often taking several years to complete and costing several thousands of dollars. A popular means of avoiding probate is to create a living trust. A living trust can avoid probate, but only as to the property held in the trust. It is for this reason that royalties should be transferred to the trust, along with most other types of property.
Listing the Royalties in the Trust Document
Living trusts are vessels that hold property for distribution at some point in the future, usually upon the death of the person who created the trust. It is important to list the royalties in the trust document so that the person who becomes responsible for the trust property after the death of the person who created the trust knows that the trust holds the royalties. Attached to the back of a living trust document is a page usually titled “Schedule A” or “Exhibit A.” This schedule lists all of the property held in the trust. It is here that you should list your royalties. You need only include as much information about the royalties as is necessary for the person who takes over the trust to identify them. For example, you might include language that states, “Royalties from XYZ Company.” If the royalties have an identification number, you should include that identification number as well.
Creating an Assignment Form
Once the royalties are listed in Schedule A or Exhibit A, you should then create and sign a form that formally transfers your royalty interest. Such a form is often referred to as an “assignment of property interest.” There is no standard assignment form, but creating one is a straightforward task. The language of the form must only state that you are transferring your royalty interest to yourself as the trustee of your trust. For example, this language might read, “I, Jane Smith, hereby assign and transfer all my interest in the royalties from XYZ Company to Jane Smith, trustee of the Jane Smith Living Trust.” You must sign and date this form. You signature is required two times here. Sign the document as you would normally sign your name to show that you, as an individual, are assigning the royalties to your trust. Include the word “Trustee” after your second signature to show that you, as the trustee of your trust, are accepting the transfer to the trust. Although not required, it is a good idea to sign the form before a notary public.
Notifying the Royalty Company
There is no formal paperwork you are required to deliver to the royalty company to transfer royalties to a living trust, but it is a good idea to let that company know that you have transferred your royalties to the trust. Although you are still entitled to receive royalty payments as you did before the transfer, notifying the company can avoid any potential problems the person who handles your trust after you may have with the company. You can send the company a copy of your assignment form so the company can add it to its records. You should also tell the company to continue making payments to you.