Estate planning is a multifaceted process that encompasses various aspects, including the distribution of assets upon your death. While many people focus on deciding how their current assets will be allocated to their loved ones, there is a subset of individuals who must also consider assets that continue to generate income after their passing â a concept known as residual income. To ensure a comprehensive approach to estate planning that encompasses all assets, including residual income, the experienced attorneys at Unsworth LaPlante, PLLC discuss estate planning for residual income.
Understanding Residual Income and Its Implications
Residual income refers to the ongoing earnings derived from past efforts or investments. Although commonly associated with the entertainment industry, where royalties from films, music, or television shows continue to generate income long after their creation, residual income can also arise from various other professions and sources, such as writing, inventing, or investments in certain types of businesses. It’s essential to recognize the significance of residual income within the context of estate planning, as it represents a valuable and potentially substantial asset that forms part of an individual’s estate upon their death.
Consider the case of a well-known actor like Matthew Perry, best known for his role as Chandler Bing on the popular television series Friends. Despite his passing, Perry’s legacy lives on through the continued success of Friends, which continues to generate significant residual royalties. Estimates suggest that the ongoing royalties from the show amount to over $20 million annually, underscoring the importance of proactively planning for residual income within one’s estate.
Estate Planning Strategies Tailored for Residual Income
When incorporating residual income into an estate plan, individuals have several options at their disposal, each with its own benefits and considerations:
- Designated Beneficiaries: In certain industries, such as entertainment, organizations like the Screen Actors Guild-American Federation of Television and Radio Artists offer contracts that allow members to designate beneficiaries for residual payments posthumously. By specifying beneficiaries for residual income, individuals can ensure a smooth and efficient transfer of assets outside of the probate process, providing timely financial support to their chosen recipients.
- Establishing a Trust: Another effective strategy for managing residual income is to transfer it into a trust during your lifetime or upon death. Trusts offer numerous advantages, including asset protection, tax planning opportunities, and flexibility in directing income distribution to beneficiaries. By appointing a Trustee to oversee the trust assets, you can ensure responsible management and seamless distribution of residual income according to your wishes.
- Last Will and Testament: While less flexible than trusts, a Last Will and Testament can still serve as a valuable tool for addressing residual income within an estate plan. You can specify how residual income should be distributed among your heirs or beneficiaries, albeit with less control over management of the assets compared to trusts or designated beneficiary arrangements.
- Intestate Succession: Failing to create a Will or Trust results in intestate succession, where state laws dictate the distribution of estate assets. In the case of significant residual income, dying intestate can lead to complications and disputes among potential heirs, potentially delaying the resolution of the estate and increasing the likelihood of litigation.
Estate planning for residual income requires careful consideration and proactive decision-making to ensure the efficient management and distribution of assets. By working with an experienced estate planning attorney and exploring various planning strategies, you can safeguard your legacy and provide for your loved ones, both now and in the future.
Do You Need to Include Residual Income in Your Estate Plan?
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about estate planning for people with residual income, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.
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