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. Not only do they derive income directly from their performances, appearances and sales of their work, but they may 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.
Estate planning helps to 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 of whom have significant ongoing revenue streams of royalties from their music and from licenses for the use of their images.
However, 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 Jeffay Chang, a trust advisor with City National Bank in New York City.
While it's fairly common for actors, musicians, artists and writers to work with a business manager once they reach a higher level of success, it's less common for them to set up a comprehensive estate plan, which usually requires a legal team and estate planning experts to work hand-in-hand with their business manager.
But if they don't have a coordinated team, this can be a problem, said Chang. 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.
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 Chang.
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.
Brand promotion is likely handled for the creative person by a single business manager, but the management of intangible assets requires a team that includes, but is not limited to your attorney, a wealth advisor and a trust expert.
Combining estate planning with business planning can result in preserving and growing an ongoing revenue stream for your heirs but also 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 Chang.
“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.
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. However, 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.
Perhaps no one can speak to this better than RoyaltyZone, a provider of web-based software for artists, actors, writers and musicians. The software allows people in creative industries to control their licensing agreements and have streamlined access to contract information, renewal options and procedures for using someone's intellectual property, according to Lou Ellman, founder of RoyaltyZone, an offering of FilmTrack. FilmTrack was purchased by City National Bank in 2019 and is a wholly owned subsidiary of the bank.
Ellman has learned over the years that artists' rights are more complicated than the general public might think, as technologies like RoyaltyZone have 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 want to know what's going on," said Ellman.
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. RoyaltyZone also can coordinate approvals of new product designs across the manufacturer, licensing agency, and the family or estate.
Need to discuss your estate plan with an advisor and wish to find one? Whether you're a creative type or not, City National can help. Get in touch with a City National Advisor today.
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.
City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circumstances.
RoyaltyZone is an offering of FilmTrack. FilmTrack is an RBC Company and subsidiary of City National Bank.