Preserving a Creative Legacy: Intellectual Property Considerations in Estate Planning

As an artist, creative or author in the UK, your copyright is a valuable asset that forms an integral part of your estate – but it is sometimes overlooked due to its intangible nature. Copyright of written text is protected as a ‘literary work’ and it lasts for 70 years after the author dies,[1] with the potential to provide a stable income for generations to come. Neglecting clear posthumous instructions, however, may burden loved ones with messy and expensive litigation. Picasso left no Will and the division of his assets, including the intellectual property rights to his works, took six years and $30 million in legal fees to settle. The inheritance tax of several million francs also meant that over 3,000 of his works left the family and became state property.[2]

Effective estate planning is essential to ensure that your creative works and their associated benefits are efficiently managed and distributed according to your wishes after your passing.

The Beneficiaries

While copyright can be bequeathed to anyone, beneficiaries tend to be family members, friends, charitable organisations, or business partners. A copyright owner is generally unconstrained as to who they can pass on rights to their work “by testamentary disposition”,[3] although there are sometimes contractual requirements for assignment such as written consent from the publisher. Also bear in mind that the author may not be the owner of the copyright work in issue, so establishing who owns it in the first place is important.

While an author might only have one successful piece of published work, there are often multiple rights within a single creation. For instance, a song might have its score protected as a musical work and the accompanying lyrics protected as a literary work. Performance rights can also subsist if the work is performed. Should you want these rights to go to a particular individual however, you must make a specific provision for this in your Will the copyright will go to whoever is the residuary beneficiary of the estate. Issues with the validity of the Will could lead to your assets being distributed under the intestacy rules.

As an author, you might want the income from your works to go to multiple beneficiaries. While it might be tempting to directly bequeath the copyright to all your children, this could cause administrative problems in the future; any proposals to commercially exploit the copyright, such as licensing the rights to reproduce a painting as prints, will require formal consent from all the copyright holders. A sensible approach is to bequeath copyright to an executor who can, if instructed, distribute the income between the beneficiaries.

Estate Management

Another reason why it is not always wise to directly bequeath copyright to the beneficiaries is that they might lack the ability to effectively manage the asset. In Picasso’s case, his son Claude sold the family name to Citroen in 1989, leading to legal issues with another family member who criticised the “banal” exploitation of the Picasso legacy.[4]

A sensible alternative is to appoint executors with specialist knowledge of a particular industry who will understand how to navigate the contracts associated with the copyright. To do this, a Will needs to grant appropriate powers to the executors to handle all aspects of the asset such as licensing, sales and continued use of the work.

Authors, for example, often appoint literary executors who deal exclusively with the literary asset. Literary executors are not usually involved with the rest of the estate and operate from a separate grant of probate. While this is often a wise approach, literary executors act out of an independent pot of money to the general executors, meaning there is always a risk that one set of administrators will run out of funds. In such cases, both groups of executors will have to cooperate – sometimes based on the testator’s provision of a power for the groups to lend to each other. It is clear how such arrangements could potentially lead to litigation.

A practical alternative is a literary agent. This individual, appointed either in the Will or the letter of wishes, continues to manage the work for the benefit of the family without the complications of a literary executor.

Tax Considerations

One of the most important aspects of estate planning is minimising the tax liability associated with the transfer of assets. Like any other asset, intellectual property is included in an estate for inheritance tax purposes, though assessing its value can be a complicated and technical exercise.

Usually, inheritance tax is calculated by the market value of an asset at the time of the testator’s death.[5] The difficulty here is that there is no single “market” for copyright, so the value is assessed from the projected income streams of the copyright work in the years before the creator’s death – often based on a multiple-year average depending on how drastically the valuation fluctuates. For example, critically acclaimed novels are often in print for several years; a textbook in a niche, fast-changing area of science might be popular in its day but could quickly become outdated and fall out of print. It becomes even more difficult if the relevant work is only discovered and becomes popular after the author’s death.

Like many other taxable assets, there is the possibility of reducing inheritance tax liability on copyright. For example, business property relief will arise if an author was still writing within two years of their death – often the case as many authors never stop writing. Authors wishing to bequeath copyright to their surviving spouse also have the option of putting the copyright in a business property trust to prevent the spouse from being hit with a significant tax bill too quickly. That said, if the spouse decides to carry on the authorship business, effectively acting as a literary agent for the deceased, then a business property trust will not be necessary.

Another way of reducing inheritance tax liability is for the author to gift the copyright to their heirs while they are still alive. This will reduce the value of the estate for inheritance tax purposes, though this strategy is vulnerable to the testator passing within seven years of the transfer, which will attract a tax liability.

A further consideration is the international tax liability that intellectual property might attract. Prominent musicians live global lifestyles, film directors are commissioned by studios around the world, and authors often have contracts in multiple jurisdictions so their work can be published overseas – adding layers of complexity to an estate. The law in this area is beyond the scope of this article, but there are several issues a creator should be mindful of.

The “situs”, or location, of copyright corresponds to the country governing its legal status and is an important factor when an intellectual property portfolio can be governed by multiple countries. Just like other assets, it should be considered whether a Will is to encompass all jurisdictions or selectively exclude certain ones. This decision hinges on each country’s specific inheritance requirements and the optimal approach for managing the assets in question.

The situs of these assets also impacts UK inheritance tax liabilities, particularly if the author resides in the UK but lacks UK domicile or deemed domicile. Additionally, relevant estate tax treaties may aid in determining the situs of these rights.

Key Takeaways

  • Clear Instructions: Failing to leave clear posthumous instructions can lead to complicated legal battles, as seen in the Picasso estate, underscoring the importance of a well-structured estate plan. Understanding who owns the copyright in the first place is also very important.
  • Beneficiary Considerations: Bequeathing copyright requires careful selection of beneficiaries and specifying provisions in your Will, accounting for potential complexities with multiple rights and commercial use.
  • Expert Management: Executors with industry expertise can effectively manage copyrights, preventing mismanagement and maximising asset value.
  • Tax Mitigation Strategies: Minimising tax liabilities through strategies like business property relief, gifting, and understanding international tax implications is crucial in preserving the value of intellectual property.
  • Global Perspective: Creators with global reach must navigate international legalities and treaties to ensure a comprehensive estate plan.

Written by William Watts, Legal Assistant – Bristol office (supervised by Tom Gauterin, Director; Sarah Bolt, Managing Associate and Martin Noble, Partner) William.watts@freeths.co.uk 

[1] Copyright, Designs and Patents Act 1988 section 12(2)

[2] The Battle for Picasso’s Multi-Billion-Dollar Empire | Vanity Fair

[3] CDPA section 90(1)

[4] A Family Feud Over a Picasso (On Wheels); A New Car’s Logo Divides The Heirs of a Lucrative Name – The New York Times (nytimes.com)

[5] Inheritance Tax Act 1984 section 160

Read more stories

Join nearly 5,000 other practitioners – sign up to our free newsletter

You’ll receive the latest updates, analysis, and best practice straight to your inbox.

Features