How to Fund a Living Trust With Royalties

By John Stevens J.D.

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.

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.

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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.

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How to Void or Cancel a Living Trust

References

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How to Prepare a Living Trust at Home

A living trust allows you to place assets under the care of a trustee who then distributes the assets to the beneficiaries of your choosing, in accordance with the terms you've set forth in your trust document. A living trust is often used to protect assets from the expense and delays of the probate process. A revocable trust is taxed as the grantor's personal assets, while an irrevocable trust is taxed as an independent legal entity. You may establish a living trust by executing a trust document and placing assets into the trust. Although it is best to retain an attorney to draft the living trust, it is possible to draft it yourself with the aid of an online legal document provider.

How to Add Assets to a Living Trust

A trust allows you to place your assets under the control of a trustee you select, for eventual distribution to the trust beneficiaries. A trust is useless, however, until you transfer assets to it in accordance with appropriate legal procedures. If your trust is irrevocable, its assets are no longer yours -- they belong to the beneficiaries under the terms of the trust deed, even though legal title is vested in the trustee.

Transferring Property From a Living Trust to a Successor Trustee

A successor trustee is named in a living trust as the person who will take over the trustee’s duties and fulfill provisions of the trust when the trustee dies. The transition process requires trust property to be transferred out of the trustee's name into the successor trustee's name. To do this, the successor trustee must review the trust document and prepare the necessary transfer documents for each type of property held in the trust.

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