When most people think about estate planning, they focus on real estate, bank accounts, or retirement savings. But for many Floridians, residual income—money that continues to flow in after the initial work is done—can be just as important to plan for. Residual income might come from royalties, rental properties, business interests, or even online ventures, and if it’s not addressed correctly, it could create complications for your loved ones.
What Is Residual Income?
Residual income is any ongoing stream of revenue generated after the initial effort or investment. Common examples include:
- Royalties from books, music, or patents
- Rental income from real estate
- Licensing fees from intellectual property
- Business profits from a company you own, even if you’re not actively working there
- Affiliate or digital marketing income from websites or online platforms
Unlike a one-time asset transfer, these sources often require continued management after death. That means your estate plan should clearly identify how they will be handled.
Why Residual Income Creates Special Challenges
Residual income can be tricky in estate planning because:
- Timing matters: Payments may come in monthly, quarterly, or yearly. If your plan doesn’t specify how to handle ongoing distributions, heirs may face delays.
- Management is required: Someone may need to maintain rental properties, manage contracts, or ensure intellectual property remains protected.
- Tax considerations: Residual income may create income tax obligations for your estate or beneficiaries.
- Transfer restrictions: Some business contracts or licensing agreements limit who can inherit rights or ownership.
Planning Options for Residual Income
A thoughtful estate plan can ensure that these income streams continue to benefit your family without creating unnecessary burdens. Options include:
1. Use of a Revocable Living Trust
Placing residual income assets into a trust allows for seamless management if you become incapacitated and smoother transitions after death. A trustee can continue managing the income-producing property without probate delays.
2. Successor Management for Businesses
If residual income comes from a business, identify who will step in to manage or oversee it. This could be a family member, co-owner, or professional manager. Clear instructions help prevent disruption.
3. Handling Intellectual Property
Copyrights, trademarks, and patents may continue generating royalties long after you’re gone. Your estate plan should spell out who inherits these rights and who will enforce or renew them.
4. Tax-Smart Planning
Residual income may carry unique tax consequences. For example, rental income or royalties are taxable to the recipient. Structuring these assets in a trust or entity may help simplify tax reporting for your heirs.
Keeping Beneficiaries Informed
Residual income often requires explanation to those inheriting it. For example, your children may understand a savings account but not the details of your book royalties. Including instructions in your estate plan—or a separate letter of guidance—can help them manage these assets wisely.
Conclusion
Residual income can be one of the most valuable parts of your legacy, but it requires special attention in your estate plan. Without careful planning, your loved ones may face confusion, disputes, or missed opportunities. If you have questions about how to include residual income in your estate plan, contact Bart Scovill, PLC for guidance tailored to your situation. https://scovills.com/?p=3297
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