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Estate
Planning for Writers This article is an attempt to answer the question posed in an earlier newsletter about setting up literary estates. Can we, as writers, pass on intellectual property and any income which may be derived from it after we die? The simple answer is yes. Before setting forth the answers, I wish to announce the standard disclaimer that I am not a lawyer, paralegal, or financial planning professional. This is merely the fruit of one writer’s research on the web. Two kinds of property are being discussed when we talk about a literary estate. The first is the physical property—books, magazines, papers, notebooks, disks—that can be treated as any physical property, such as your grandmother’s silver, your wedding china, or antique jewelry that you wish to leave to a particular person. The second is the copyrights and the income that comes from them. As you begin your career, keep track of both the physical property and the copyrights. Just as you do a financial inventory around tax time, it is a good idea to do an assets inventory. (Include your library in this; as your career progresses that could be quite a sizable asset.) If you have written for free for a church newsletter, garden club, local history society, or genealogy club, that organization might appreciate a scrapbook of your efforts and some notes about you, the author. The writing that has brought you income is another matter, and you may wish to leave those materials to an institution that will conserve them for others to use. If you do, consider funding the deposit with a literary trust, or bequest. This need not be the whole of your literary estate, the bulk of which can still be left to your family. The second type of property is the intellectual property, the copyrights and the income to be derived from this. This is the complex part of the estate. Just as there are two kinds of property there are two categories of ways to bequeath it to your heirs: wills and trusts. At the beginning of your career a will may be quite adequate to protect your family against the contingency of your unexpected death. Will-making software may also be the foundation for writing your will. But because the language of the bequest regarding income from your copyrights is technical, you should consult a paralegal or lawyer who is skilled in the area of intellectual property and estate planning to review what you have written. You should review your will and update it regularly. Possibly reviewing your will at the same time you begin to prepare your taxes is a timely schedule. You may leave your estate through your will even if it is quite complex, but you should designate a separate literary executor from the regular executor. The literary executor should be paid, and must be knowledgeable about copyrights and willing to nurture your estate so that it will continue to produce income for your heirs. Your agent or agency can act in this regard. A successor should be designated in your will, since the copyrights that you hold may outlast you by seventy years. This will apply to setting up a trust as well. Someone will need to be designated to act in the interest of the trust. (The article “Final Drafts” cited at the bottom of this article has much more on this subject.) While there is only one kind of will, there are a variety of trusts. The most commonly used trust is called the “living trust,” and it is set up so that the person making it can continue to derive income from the assets deposited into it until death. Furthermore, a revocable trust is usually favored for assets can be taken from it and added to it without having to completely remake it; This is cost effective over time. The “living trust” is frequently used in estate and tax planning for it allows the estate to avoid probate as well as taxes. Avoiding probate does not mean avoiding lawyers fees, since distributing assets of the trust to the heirs will require a lawyer’s time; it is likely to cost less than the probated will, however, depending on the law in your state. The trust will not automatically avoid estate taxes either, and this is one of the reasons to hire an attorney. Legacy and dynasty trusts can be funded with income to be derived from your literary assets. These trusts protect assets from the main estate by removing them and in effect, setting up a second estate which goes to a future generation or generations. They are so complicated that professional help is a must, and you may read more about them here: http://www.savewealth.com/planning/estate/legacytrusts/. You do not have to be mega-rich to use these trusts. The maximum that the law allows for funding such a trust with no estate tax is a little over $1 million at this writing. This is not really a large amount in today’s economy. Many writers will have this much and more as total assets for our heirs. A subcategory of legacy trusts is the Roth legacy trust. This seems to be an extension of the Roth IRA. Strictly speaking it does not seem to be connected to the literary estate, per se, but it is too valuable not to take a look at it, so here is the source of the information: http://www.rothira.com/legacy. If you are married, and you and your spouse have combined assets of more than one million dollars, you will want to research AB trusts, which will protect more of your assets for the surviving spouse. Effectively, I think that the B trust becomes one of the beneficiaries of the A trust so that a larger amount of money may be excluded from the estate tax. Protecting assets (which sounds better than “avoiding taxes”) is crucial, for as the cost of living rises, and especially as interest rates remain low, it will take a larger principal to fund quality-of-life in old age. End-of-life care cost is also rising and it should be considered here. See the website para-legal plus.com, “The ‘Tax-Avoiding’ A-B Trust” (http://www.paralegal-plus.com/trust_10.htm) to see how this works. If you have a disabled family member who may need caring for throughout his or her life, consider establishing or helping to fund a “Special Needs Trust” with the income from your literary estate. This type of trust and legacy trusts should be set up with an institution such as a bank acting as trustee, rather than an individual, so that the trust will outlast the person it has been set up for. In some cases, a legacy trust might fulfill the needs of the disabled person and keep the money flowing for the next generation. If the disabled person is relying on government benefits for income and medical coverage, then a “Special Needs Trust,” following the rules Social Security has laid down for this, must be used, and it is imperative to consult an attorney who knows specifically how to set up this trust, for if the language is not exact, the person could lose government benefits until the inheritance is used up and government benefits will begin again. This is obviously the exact opposite of the intention of setting up a trust, so getting the best legal advice you can find will make the best gift of your trust. To recap then, this is a really complex matter. The larger the body of work, and the more income to be derived from it, the more complex it will become. Eventually, it will become necessary to hire a professional. Just as we writers hope and expect to be paid for our work, so do financial and estate planning specialists. Choose the level of help that you actually need. Preparing your will with will-making software allows you to do the bulk of the work yourself and then a professional can review and revise. Using this software also makes updating easy. (But note: each time that you make changes you will have to have the document witnessed again in order to keep it valid.) Doing it yourself will cost you less at the outset. A paralegal may be as good as a lawyer if you are just starting out, or do not have a complex estate. Your bank may offer trust services for lower fees than an attorney. If you are fifty or over, consider joining the American Association of Retired Persons, which has a Legal Services Network for reduced fees (see the web citation below). Do your homework. Taking a financial planning or estate planning course or workshop through your adult education, university extension, or local junior college could save you a great deal of money as it will help you choose among the many consulting services that you could hire. You will be able to ask questions so that you can ensure that everything is covered and everything is set up the way that you really want it to be. Finally, something that I wish I had known before I became my father’s executor several years ago when he died, and that is that for many types of property there is a provision called “Pay on Death Beneficiary.” Bank accounts can be set up so that they will go immediately to the person designated as beneficiary. Banks have the forms. Similarly, titles to cars can be set up this way, and the transfer after the death is much easier to complete. (Transferring the title to the 1955 Chevy that had been sitting as a “non-op” in our garage for so many years that it had fallen out of the state’s computer data-base was a nightmare that I wouldn’t wish on my worst enemy. It could have been so simple if we had only known!) For any estate that is valued under the amount that will be subject to the estate taxes, this may be a good way to go, and having one checking account set up this way so that someone can access it for funeral funds in the event of an unexpected death would also, I think, be a great kindness to your survivors. For the amount that can be excluded from estate taxes and for information about estate tax rates (very high), please visit the Internal Revenue Site cited below. I have not cited exact rates for this article because the schedule is changing every year, and the IRS regulations change every year also. RESOURCES “The ‘Tax-Avoiding’ A-B Trust,” Paralegal-plus.com: http://www.paralegal-plus.com/trust_10.htm Good Shepherd Fund-- special needs trust: http://www.goodshepherdfund.org/services/specialneeds.html "Shielding your Estate from the Taxman, Part I" by Cade D. Sibley, Boomer Cafe: http://www.boomercafe.com/Tax1.htm "Shielding Your Estate from the Taxman, Part III" by Cade D. Sibley, Boomer Cafe: http://www.boomercafe.com/EstatePlan3.htm "The Roth Legacy Trust" by Robert S. Keebler, CPA, MST and Michael Bleck, rothira.com: http://www.rothira.com/legacy.htm "Estate Planning Issues and Intellectual Property": Findlaw.com The Legacy Trust: http://www.savewealth.com/planning/estate/legacytrusts/ "Why an Estate Plan is Essential for your Business and Family" by Tonya M. Evans, Esquire, EBE Law: http://www.ebelaw.net/ep-001a.htm "Final Drafts" by Lloyd Jassin and Ronald Finkelstein, copylaw.com: http://copylaw.com/new_articles/finaldrafts.html "The Special Needs Trust," Richard W. Fee, M.A., M.ED, National Institute on Life Planning for Persons with Disabilities, NICHCY-Estate Planning: http://www.kidsource.com/kidsource/content4/estate.dis.all.3.3.html "The Special Needs Trust" by Dave Harmon, MSW, MBA, eparent.com: http://www.eparent.com/lifeplanning/financial/metdesk_4.htm American Association of Retired Persons, Legal Services Network: http://www.aarp.org/benefits-financial/Articles/a2002-05-10-AARPLegalServicesNetwork.html Internal Revenue Service: http://www.irs.gov/ Nolo Press: http://www.nolo.com/ Marguerite Manor lives, researches, and writes in Silicon Valley. A wide variety of subjects interest her, from history, her first love, to psychology and religion, in which she has done graduate work. She is currently at work on a book on finding new ways to work in a downsized economy, and on several unfinished novels. |
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