FAQS: Athletes and Entertainers
Q: How do copyrights and royalties factor into my estate planning?
A: With a few important distinctions, a copyright generally is like any other intangible asset within your estate. It can be owned jointly, held in trust and transferred by gift or at death. For example, copyright owners can transfer the right, title and interest in any musical works, including the right of public performance, subject to any contractual licenses that may have been made during your lifetime. That said, The Copyright Act includes specific regulations that dictate who receives your renewal or termination rights, despite any instruction to the contrary in your will. The McLawhorn Firm can work with you to ensure that renewals and transfers are made according to your wishes and in accordance with copyright law.
Royalties also can be transferred to a loved one. For example, ASCAP members can sell or irrevocably assign the rights to receive ASCAP royalties to a family member, living trust or family-held company. Again, The McLawhorn Firm can help you make sure your wishes are accurately reflected and meet legal and contractual requirements.
Q: My agent suggested that I look into an asset protection trust. Would this make sense for me?
A: Asset protection trusts are highly customized and technically demanding plans. You may want to consider one if your net worth exceeds $500,000. (Remember, houses, cash in the bank, investment portfolios, insurance policies and retirement savings all contribute to your net worth.) If it's more than $1 million, you should definitely look into the benefits.
Q: Can't I just protect my assets from litigants and creditors by giving them to a relative to hold for me?
A: If you give all of your assets to your spouse or sell all of them to a relative for $1 (a common tactic) to protect them from creditors, you will likely be challenged with a fraudulent transfer, and your relative will have to relinquish the assets.
Q: I have liability insurance. Is that enough to protect my assets from lawsuits?
A: Adequate insurance is a good first defense against liability. But insurance policies often don't cover you for punitive damages or intentional wrongdoing. Potential lawsuits can also involve amounts that exceed your insurance coverage.
Q: My parents have supported me throughout my career, and now my mom wants to start a business of her own. Are there estate planning techniques I can use to loan money to family members?
A: Yes, but you have to be careful to make sure you avoid taxes imposed on you or the family member you loan to. The IRS lets you loan money through an intra-family loan at the Applicable Federal Rate, which the government sets each month. It's much cheaper than a bank rate. If family borrowers make wise investments with your loan, they may be able to generate income after paying you back.
Here's an example. You could loan a relative money to buy property (a boutique, a bed and breakfast, a home to retire in) at a low mortgage rate. As long as the property appreciates by more than this rate each year, your relative will profit from your loan. You could even reduce your relative's debt and your estate tax bill at the same time by giving your relative $13,000 -the maximum gift allowed without a tax penalty-every year to pay down the principal.
Q: I'm getting married next year. What specific protections can I put in place for my future spouse and children?
A: Congratulations! For structuring a child's inheritance, a trust is the simplest solution. You can make specific provisions, including the age at which your child will receive the inheritance. Unlike a will, a trust can also specify that children receive only income from the assets in the trust until they turn a certain age or ensure the assets remain protected from if your child is every sued. You can also specify to spread out payments over a number of years, or to require children to reach certain milestones before receiving any payments.
The McLawhorn Firm can also help you implement asset protection or estate planning trusts that consider the future protection and distribution of assets and benefits of both parties. These trusts may also be used in addition to, or in lieu of, a prenuptial agreement to protect certain types of assets.
Q: I've started a foundation to support youth mentorship in my old neighborhood. How much can I, or others, give to it each year and still receive a tax deduction (without incurring a gift tax)?
A: Generally, donors (including you) can make cash contributions of up to 30% of their adjusted gross income (AGI) and receive an itemized deduction in the same tax year. For gifts of property and contributions of appreciated securities held for more than one year, deductions are limited to 20% of the donor's AGI. You can carry any excess amount forward for deduction in the five-year period after your contribution. As always, you should consult The McLawhorn Firm or your tax advisor for more information about your personal situation.
Q. Can I make sure my former spouse does not have access to the assets I leave my children if my former spouse gets custody?
A: You may include provisions in your will that establishes a guardian of your child's estate as well as a guardian of the child's person. A Guardian of the Person is an individual who is appointed by the Court to be legally responsible for the personal affairs of a minor. A Guardian of the Estate is an individual who is appointed by the Court or the Clerk to be legally responsible for the care and maintenance of a minor's financial matters, until the minor reaches the age of eighteen (18). You may also establish a children's trust to hold assets according to your very specific instructions and restrictions.
Have questions of your own? Contact The McLawhorn Firm today for a consultation.
IRS CIRCULAR 230 DISCLOSURE: Unless expressly stated otherwise, any U.S. federal tax advice contained in this website is not intended or written by THE MCLAWHORN FIRM to be used, and any such tax advice cannot be used, for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.
