Why am I talking about putting copyrights in a trust or LLC? Many copyright owners do not realize that their copyrights are part of their probate estate after their death. For those who aren’t sure what I just said, the estate is everything that a person owns in their own name. The probate estate is the portion of the estate that is subject to probate, meaning that the Probate Court has the authority to oversee the administration and distribution of those assets. The probate estate typically includes any assets not held in trust and/or without a beneficiary designation. In California, the Probate Court must get involved when the probate estate is worth more than $166,000 (as of 2021; this number will be adjusted for inflation).
What this means is that if an estate is subject to probate, any copyrights in the estate will have to go through the probate process as well. It’s even possible that the copyrights’ value could push the probate estate past the $166,000 threshold when the estate might have avoided it otherwise. Since there are several reasons why probate should be avoided if possible, this is not ideal.
There are two possible ways to get the copyrights out of the probate estate so that probate is not an issue (or if it is, the copyrights can stay out of it). The first method is to place the copyrights in your trust. Anything owned by the trust is not included in the probate estate, so the copyrights are not counted towards that $166,000 threshold and are not subject to the Probate Court’s whims. You can also use the trust to specify who the copyrights go to after you die, and you can even have the copyrights stay in trust, with the trustee managing them and writing checks to the beneficiaries.
The second option is to put the copyrights into a corporation, such as an LLC. If you already have a corporation and the copyrights are used as part of your business, it would make sense to have the corporation be the copyright owner. When you pass on the business, you will pass on the copyrights at the same time.
One important thing to note about putting copyrights into a corporation: not all corporations are created equal, and not all of them are outside the probate estate. So, be sure to speak with your CPA or tax attorney to see whether this is an effective strategy for you. Also, even if the corporation itself is not subject to probate, your ownership interest is. If you are the sole owner of your corporation, this means that incorporating, by itself, will not keep you out of Probate Court. (However, you can put your ownership interest in your trust and avoid probate that way.)
So which option is best for you? If you already have a corporation, it may make sense to have the copyrights owned by it, depending on what your CPA or tax attorney says. If you don’t already have a corporation, and it doesn’t make sense from a business standpoint to create one, you’re probably better off putting your copyrights into a trust.
If you would like to discuss if you should put your copyright in a trust or LLC in more detail and figure out which option is the best for you, please reach out to me at kaway@kawaylaw.com.
