When it comes to estate planning, many focus solely on how their current assets will be distributed after they’re gone. But for some, there’s another factor to consider — residual income. This refers to earnings generated from past work that continue even after death. To ensure your estate plan covers all the relevant bases, the Los Angeles attorneys at Schomer Law Group, APC discuss estate planning strategies tailored for those anticipating ongoing, or residual, income.
Understanding Ongoing (Residual) Income
Residual income encompasses ongoing payments derived from past endeavors. While commonly associated with the entertainment sector, it’s applicable to various professions, including writers and inventors. A recent CNBC article about Friends actor Matthew Perry highlights the significance of including residual income in estate planning. Perry’s ongoing royalties from the iconic TV show are estimated at over $20 million annually, underscoring the need to address such income in estate plans.
Estate Planning Strategies for Residual Income
Depending on the details of his estate plan, and whether those details are made public, we may not ever know who inherits Matthew Perry’s residual income. For anyone who anticipates having ongoing income after their death, however, there are four basic options for addressing that income within your estate plan, including:
- Designated Beneficiaries: For individuals in industries like entertainment, where residual income is common, specifying beneficiaries for such payments is frequently an option at the time contracts are signed. This ensures a seamless transfer of assets without the need for probate, reducing delays and administrative costs. Additionally, it allows for direct control over who inherits these assets, providing peace of mind for the estate owner.
- Trust Creation: Creating a trust offers several advantages, particularly for those with substantial residual income. By appointing a Trustee, individuals can entrust the management of their assets to a competent professional, ensuring prudent investment and distribution according to their wishes. Moreover, trusts provide flexibility in income distribution, allowing for tailored plans that accommodate beneficiaries’ needs. From a tax perspective, certain trusts offer potential advantages, such as minimizing estate taxes and preserving wealth for future generations.
- Last Will and Testament: While a Will is a fundamental component of estate planning, relying solely on it to address residual income may be insufficient and ineffective. Wills are subject to probate, a potentially lengthy and public process that can delay asset distribution and incur additional expenses. Furthermore, without specific instructions regarding residual income, there’s limited control over how these assets are managed and distributed posthumously.
- Intestate Succession: Failing to create an estate plan leaves one’s assets vulnerable to intestacy laws, which may not align with the individual’s preferences. In cases of significant residual income, intestate succession can lead to disputes among potential heirs, resulting in prolonged legal battles and financial uncertainty for beneficiaries. By proactively addressing residual income in an estate plan, individuals can mitigate these risks and ensure their wishes are carried out effectively.
Incorporating these strategies into an estate plan empowers individuals to protect their wealth and legacy, providing clarity and security for their loved ones. Whether through designated beneficiaries, trusts, Wills, or proactive planning, addressing residual income ensures a comprehensive and robust estate plan that reflects one’s values and priorities.
Do You Need to Incorporate Ongoing Income into Your Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you have questions about incorporating ongoing (residual) income into your estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.
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