How are royalties distributed after death

As an estate planning attorney and CPA with over 35 years of experience, I’ve seen firsthand the chaos that unfolds when intellectual property rights – and the royalties they generate – aren’t properly addressed in estate planning. I recently had a client, Emily, a successful songwriter, pass away unexpectedly. She had a complex royalty stream from both music publishing and book advances. Her family was devastated, not just by her loss, but by the fact that royalty checks continued to arrive months after her death, and nobody knew what to do with them. They were facing potential legal issues simply because they didn’t have a clear plan. These situations underscore the importance of proactive planning, especially when substantial income continues beyond the grave.

What Happens to Royalties When Someone Dies?

The distribution of royalties after death hinges on how the intellectual property rights are held and what instructions are left in the deceased’s estate plan. Royalties are considered income for estate tax purposes, and their handling is governed by both federal tax law and the terms of any underlying contracts. It’s not as simple as just adding the money to the estate; there are specific procedures to follow, and failing to do so can result in lost income or even legal penalties. A well-drafted estate plan should designate an executor or trustee with the authority to manage these ongoing income streams.

Understanding the Role of the Executor and Trustee

Your executor – named in your Will – or trustee – named in your Trust – has a fiduciary duty to manage your estate assets, including royalty rights. This means they must act in the best interests of the beneficiaries. Specifically regarding royalties, they’re responsible for:

• Identifying Royalty Streams: This involves locating all contracts related to intellectual property, including publishing agreements, licensing agreements, and book contracts.
• Notifying Royalty Payers: Payers (like publishing companies or record labels) must be officially notified of the death and provided with documentation, such as a death certificate and letters of testamentary or trust.
• Establishing a Royalty Collection Account: A dedicated account should be established to receive royalty payments.
• Distributing Funds to Beneficiaries: After deducting any applicable taxes and expenses, the executor or trustee distributes the royalty income to the beneficiaries as outlined in the Will or Trust.

Tax Implications of Post-Death Royalties

Royalties received by the estate are subject to estate tax. However, the estate can deduct expenses related to collecting those royalties. As a CPA, I emphasize the critical importance of documenting all income and expenses meticulously. Furthermore, depending on how the royalties are distributed—whether as income or as a distribution of principal—beneficiaries may also have to pay income tax on the amounts they receive. It’s a complex area, and professional tax advice is essential. Also, consider the implications of Prop 19 if the intellectual property generating the royalty income is tied to a California property; inheritance of that property could affect the low property tax base.

The Importance of RUFADAA and Digital Assets

In the digital age, many royalties are paid via digital platforms. 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, including royalty accounts. This is a growing issue, as digital royalties represent a significant portion of income for many artists and authors. Your estate plan must explicitly grant access to these digital accounts.

Avoiding Probate with Trusts and AB 2016

A properly funded Revocable Living Trust can often bypass probate, streamlining the royalty distribution process. However, even with a Trust, you need to ensure it’s drafted to address ongoing royalty income. For California residents, understanding AB 2016 is crucial. If a primary residence is valued up to $750,000 at the time of death (deaths on or after April 1, 2025), a Petition for Succession can be filed, but the decedent’s other assets, including accumulated royalties, generally can’t exceed $208,850. It’s important to distinguish this Petition from the Small Estate Affidavit, which is only available for real property less than $69,625.

Business Entities and the FinCEN 2025 Exemption

If royalties are received through a business entity like an LLC, the rules become even more nuanced. 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. This is a crucial detail that is often overlooked.

What standards do California judges use to determine a will’s true meaning?

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.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

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.