How are royalties distributed after death

It’s a heartbreaking situation, but one I see too often: a creator – a musician, author, inventor – passes away before fully enjoying the fruits of their labor. I recently spoke with Emily, a daughter struggling to understand how to receive ongoing royalty payments for her late father’s songwriting after he died unexpectedly. She was overwhelmed, not just by grief, but by the legal complexities of continuing to receive income from his intellectual property. Unfortunately, a simple Will often isn’t enough to ensure a smooth transfer of these rights, and errors can lead to significant financial losses.

After 35 years as an estate planning attorney and a CPA, I’ve found the biggest stumbling block is a failure to properly designate beneficiaries for different types of intellectual property. A Will dictates who inherits ownership of the copyright, patent, or other rights, but it doesn’t automatically transfer the right to receive royalty payments. These rights are typically managed through licensing agreements with various entities – performance rights organizations like ASCAP and BMI for musicians, publishers for authors, and directly with companies for inventors.

What Happens to Royalty Payments During Probate?

During the probate process, any royalties received are considered estate assets and are subject to the same rules as cash, stocks, and other probate property. This means they’re subject to creditor claims, taxes, and the distribution scheme outlined in the Will. However, probate can be lengthy and expensive, and payments may be delayed while the estate is being settled. If combined ‘probate assets’ (excluding the AB 2016 residence) exceed $208,850 (the threshold effective April 1, 2025), they are subject to formal probate; a Will alone does not allow you to bypass this limit. This is a critical point, as many people underestimate the total value of their estate, including anticipated royalty income.

How to Avoid Probate for Royalty Income

The most effective way to avoid probate delays and ensure continuous royalty payments is to create a well-structured estate plan that specifically addresses intellectual property. This includes several key components:

Trust Ownership: Holding the copyright or patent within a revocable living trust allows for a seamless transfer of ownership and management upon your death, bypassing probate.
Beneficiary Designations: Directly designate beneficiaries for your rights with organizations like ASCAP, BMI, and your publishers. Ensure these designations are updated regularly to reflect your current wishes.
Assignment of Rights: Consider assigning the ongoing collection of royalties to a dedicated entity, such as a limited liability company (LLC), owned by your beneficiaries.

The CPA Advantage: Step-Up in Basis and Valuation

As a CPA, I also emphasize the tax implications. Upon your death, the intellectual property receives a “step-up” in basis to its fair market value as of the date of death. This can significantly reduce capital gains taxes when the rights are eventually sold. Accurate valuation is crucial, and a professional appraisal is often necessary, particularly for high-value assets. Without proper valuation, the IRS can challenge the tax treatment of the property, leading to penalties and interest. For example, if an inventor held a patent, the value of the patent at the time of death will determine the capital gains if it is later sold.

Digital Assets and the Importance of RUFADAA

Don’t overlook digital royalty income! Without specific RUFADAA language (Probate Code § 870) in your Trust or Will, service providers like Coinbase and Google can legally deny your executor access to your digital assets. This can be devastating if a significant portion of your royalties are held in online accounts. Make sure your digital asset inventory is included in your estate plan.

Business Interests and BOI Reporting

If your royalty income comes through a business entity like an LLC, there are evolving regulations to consider. As of March 2025, domestic U.S. LLCs are exempt from mandatory BOI reporting under the Corporate Transparency Act; however, executors managing foreign-registered entities must still file updates within 30 days to avoid fines of $500/day.

How do California courts decide whether a will reflects true intent or creates ambiguity?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

When a will is drafted with California probate review in mind, it becomes a stabilizing roadmap rather than a source of conflict. Clear intent, proper authority, and compliant execution protect both families and estates.

Resources for Asset Management & Transfer

• Property Tax Reassessment: California State Board of Equalization (Prop 19)
  This page details the “Base Year Value Transfer” rules. It explains that heirs can only avoid a property tax reassessment if the inherited home becomes their primary residence and a claim is filed within one year of the date of death.
• Real Estate Probate (AB 2016): California Probate Code § 13151 (Petition for Succession)
  The specific statute for the AB 2016 process. It outlines the requirements for using a court-approved “Petition” (not an affidavit) to transfer a primary residence worth $750,000 or less (gross value) for deaths occurring after April 1, 2025.
• Small Estate Affidavit: California Probate Code § 13100 (Personal Property)
  Access the statutory language for the “Small Estate Affidavit.” This procedure is strictly for Personal Property (cash, stocks, vehicles) and is limited to estates with a total value of $208,850 or less (effective April 1, 2025).
• Federal Estate Tax: IRS Estate Tax Guidelines
  The authoritative federal resource for estate valuation. It reflects the 2026 exemption increase to $15 million per person established by the One Big Beautiful Bill Act (OBBBA), which is critical for high-net-worth asset planning.
• Unclaimed Assets: California State Controller – Unclaimed Property
  The primary portal for executors and heirs to search for “lost” assets—such as forgotten bank accounts, uncashed dividends, and insurance benefits—that have been remitted to the State of California for safekeeping.
• Business/LLC Compliance: FinCEN – Beneficial Ownership Information (BOI)
  The official portal for corporate transparency reporting. While many domestic U.S. LLCs received exemptions in 2025, executors managing foreign-registered entities or specific non-exempt structures must still consult this resource to ensure compliance.