As digital media evolves, owners of copyrighted material are discovering new avenues to disseminate and monetize their property. More and more, copyright owners are increasing the value of their intellectual property by distributing their material via smartphones, tablets, e-readers, and other next-generation devices.
At the same time, however, transfers of copyrights filed after 1978 are being terminated under the 1978 Copyright Act. These terminations can cause major problems for copyright owners who want to transfer copyrights as part of an estate plan.
The 1978 Copyright Act granted “termination rights” to copyright owners — that is, owners who assign or transfer a copyright retain the right to “terminate,” or pull back, that transfer 35 to 40 years after the transfer was made. Termination rights protect authors, artists, and other creators who transfer a copyright for low value and might otherwise never enjoy the benefits of their work as it gains popularity. For example, John Steinbeck and Harper Lee each transferred copyright interests in their work and subsequently relied on termination rights to provide leverage in renegotiating publishing contracts after their works received international acclaim.
Termination rights are vested in the original copyright owner and give him or her the ability to terminate a transfer of the copyright during a five-year window beginning 35 years after the transfer date. Generally, termination rights are not transferrable during the original owner’s lifetime. However, if the original owner of a copyright dies during the 35-year waiting period, termination rights automatically pass to the person’s surviving spouse, children, or grandchildren by operation of law.
Transferring copyright interests becomes complicated
While termination rights are designed to protect owners, they can complicate owners’ ability to transfer valuable copyright interests to their heirs. This is due largely to a disconnect between the language of the 1978 Copyright Act and the evolution of the revocable living trust as a common estate-planning vehicle. In 1978, a person’s will was the most common way for individuals to direct the transfer of his or her assets at death. The 1978 Copyright Act specifically disallowed the subsequent termination of a transfer of copyrights that were transferred by the owner’s will.
Modern estate plans, however, typically call for an individual to transfer assets to a living trust during his or her lifetime and then rely on the terms of the trust to direct the distribution of those assets at death. Under the 1978 Copyright Act, a transfer of a copyright to a living trust during the original owner’s lifetime does not prevent a subsequent termination, unlike a transfer “by will.”
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Imagine a copyright owner with three children transfers a copyright interest to his living trust and directs the trustee to distribute the interests to Child A upon the original owner’s death. The copyright owner further directs the trustee to equalize the value of the copyright distribution with distributions of cash to Children B and C. The owner’s original transfer to the trust is the transfer that causes the 35-year clock to begin running on the owner’s termination rights. If the owner dies 20 years after transferring the copyright to his trust, Child B and Child C, by operation of law, inherit termination rights and may exercise these rights to obtain interests in the copyright up to 20 years after the owner’s death — despite the owner’s intent to leave the copyright interests to Child A. This results in a windfall for Child B and Child C, who also received cash at the owner’s death.
Utilizing trusts
If a copyright owner wishes to transfer a copyright interest to the same heirs as those acquiring termination rights by statute, there may be good reason to utilize a trust. Trusts have become the preferred estate-planning tool because they prevent the need for a probate estate at an individual’s death, resulting in greater privacy and a more efficient transfer of assets. For owners with a different distribution plan, however, the expense of a probate proceeding may be a small price to pay to protect the transfer rights to the copyright.
Another option is to use a will to leave the copyright to a trust. The trust then distributes income to designated beneficiaries. This enables the owner to appoint a savvy trustee to manage the copyright and distribute trust income to the beneficiaries without jeopardizing those beneficiaries’ receipt of the benefit of the copyright. However, as these examples demonstrate, copyright owners should consult an estate-planning professional versed in the nuances of technologically advanced assets to ensure that their plans use the proper techniques to accomplish their planning objectives.
Benjamin Brunette is an attorney in the Madison office of Whyte Hirschboeck Dudek S.C., where he is a member of the Technology and Trusts & Estates teams. He can be reached at bbrunette@whdlaw.com.
