Estate Planning Part 1: A Brief Intro to Music Copyright
Before we get into the details of estate planning, you should be aware of certain copyright basics.
Copyright in General
A copyright is a "bundle" of legal rights initially owned by the author, so-called because each right is separate and divisible, including the right to perform the work publicly (commonly referred to as the “performance right”). With a few important exceptions, your music copyrights generally are treated like any other intangible assets of your estate. They can be owned jointly, held in trust, transferred by gift or at death and so on, just like any other property.
Inventory and Valuation
A first step in planning for the disposition (a legal term meaning “transferring” or “relinquishing”) of your copyrights is to know what you have and how much it’s worth. Estimating the value of your music copyrights can be difficult, so we recommend that you seek the help of a qualified appraiser. An appraiser can look at the income-producing history of your copyrights, or, where available, the value the open market has put on music copyrights. Having some idea of the value of your copyrights will make evaluating your estate planning options easier, and will also make it easier to predict any Gift or Estate Taxes that may be imposed upon them.
Having your copyrights appraised by a qualified professional may be mandatory if you need to report the copyright on a Gift Tax or Estate Tax return.
Transfer of Deceased Members' Royalties
Given the unique needs of the estates of songwriters and composers, ASCAP permits an estate to sell or irrevocably assign to others the right to receive ASCAP writer royalties. We also permit living members to irrevocably assign royalties to a family limited partnership.
You are permitted to transfer your right, title and interest in any musical works, including the right of public performance, to such heirs, legatees or other persons you designate in your will. But the Copyright Law has some critical rules that dictate who receives a writer's renewal or termination rights, even if there is an instruction to the contrary in the writer's will.
Duration & Renewal Rights (For Music Copyrighted Before 1978)
Copyrights do not have an unlimited duration. For works copyrighted before January 1, 1978, the copyright term is divided into two terms: (1) an initial term of 28 years following the creation, and then (2) a renewal term of an additional 67 years. "Renewal rights" generally refer to the right to obtain the renewal term for such pre-1978 works. Renewal rights are not relevant to works created after 1977, because they have a "unitary" copyright term that extends, in most cases, for the life of the author plus seventy years.
For pre-1978 works, renewal rights generally do not "vest" (the legal term for “confer upon someone”) until the last year of the initial term, and then vest in the following individuals: (1) the writer; (2) if the writer is dead, the writer's surviving spouse and children, as a class; (3) if there are no surviving spouse or children, the writer's executor under his or her will; and (4) if the writer left no will, the writer's next of kin under state law.
What this means is that the Copyright Law, and not the owner of the work during the copyright's initial term, dictates who is entitled to the renewal rights in copyrights on pre-1978 works that are not in their renewal term when the writer dies. As an example, let's consider a writer who has a spouse and child. He or she is currently enjoying the initial term for a copyright on a pre-1978 work. Now, nothing surprising will happen if our writer is still alive in the final year of that initial term (the 28th year of the 28-year initial term) because the law provides that the renewal rights will "vest" in him at that time. Once vested, the renewal rights become an asset like any other, and the writer is free to keep or dispose of them as he or she sees fit (subject to ASCAP rules regarding transfers, if he is an ASCAP member).
But what if the writer dies before the renewal rights vest in the final year of the initial term? In that case, the law provides that the renewal rights will vest in the spouse and child if they are living, even if the writer wanted to give the renewal rights to, for example, a parent, sibling or charity. In this circumstance, the Copyright Law trumps any contrary wish of the writer, including his will, and requires that the renewal rights pass to the surviving spouse and child. Again, once the renewal right has "vested" in the spouse and child in the final year of the initial term, they are free to keep such renewal rights or dispose of them like any other interest (subject to ASCAP rules regarding transfers if they are successor members).
Termination and Recapture of Renewal Rights
If the renewal rights in a work (other than a work-for-hire) in its renewal term had already been granted as of January 1, 1978, other than by will, the law extended the renewal term by 39 years (when added to the initially-conferred 28 year renewal term, matching the 67-year renewal term for pre-1978 works) by the writer, if living; if the writer is dead, the recapture right belongs to the writer's surviving spouse and children (including grandchildren by a predeceased child), or, if there are none, to the writer's executor or administrator. This termination and recapture right must be exercised by issuing highly specific and complex notices set forth in the law. Once again, the law - not the writer's will - is the governing instrument. The right of the surviving spouse and children, or if there are none, of the writer's executor or administrator, to recapture the renewal rights in the event of the writer's death is uncontroverted and absolute. Finally, if the time period for this recapture had passed without its being exercised, an additional termination right exists pertaining to the last 20 years of the copyright term.
Other Termination and Recapture Rights (For Music Copyrighted After 1978)
Another peculiarity in the transfer of copyrights relates to the right of termination. For works (other than works-for-hire) created after January 1, 1978, the law currently provides that any transfer of copyright, other than by will or by operation of law, made on or after January 1, 1978, can be terminated by either the writer or by a beneficiary designated by legal statute. In other words, all rights in the copyright can be recaptured, notwithstanding any contractual agreement to the contrary.
The termination right can be exercised only during a specified five-year window beginning 35 years after the date of transfer. Thus, because the termination provision applies only to works created after January 1, 1978, 2013 was the first year the exercise of these recapture rights could have occured, for transfers made in 1978.
In the event the writer dies before the opening of this five-year window, the law provides that the writer's entire termination right passes to the surviving spouse or, if there are living children, to the spouse and the writer's children. The spouse would receive one-half of the writer's interest, while the surviving children (including the surviving children of any deceased child of the writer) would share the remaining half equally. The rights of the writer's children and grandchildren are in all cases divided among them per stirpes according to the number of children represented. The share of the children of a deceased child in a termination interest can be exercised only by the action of a majority of them. If there is no surviving spouse or child, the recapture right passes to the writer's executor or administrator.
Thus, when planning for the disposition of a copyright of a post-1978 work that has previously been transferred, you should be aware of the possibility that the grant of rights may be terminated and the copyright recaptured by the writer, a surviving spouse/child, or (if there are none), by the writer's executor or administrator, during the five-year window occurring between 35 and 40 years after such transfer.