A licensing agreement provides that a manufacturer may use an inventor's patent for ten years. The inventor assigns his rights to receive payments under the license to a corporation in which he is the controlling shareholder, without compensation. After the inventor dies, his stock is devised to his daughter, and all remaining property to his son. To whom should the manufacturer make payments under the licensing agreement?

• A. The inventor's daughter
• B. The inventor's son
• C. The corporation
• D. The manufacturer

Answer: (B)

The key idea is that a right to receive money under a contract can become property just like any other asset, and what happens to that asset after the owner dies depends on the owner's will and on possible problems with how the assignment was made.

Here, the inventor gratuitously assigned the right to receive license payments to a corporation he controlled. That kind of transfer can be viewed as shifting property out of his estate to avoid or diminish what he would pass to his heirs. When the inventor dies, the will directs that his stock pass to his daughter and “all remaining property” pass to his son. The license payments, because they are a right to future payments rather than current cash, are part of what the inventor would have owned at death. If the assignment to the corporation is challenged as a sham or as a maneuver to deprive the estate (and therefore the heirs) of value, the asset remains available to his estate and passes under the will to the residuary heir—the son.

Thus, the manufacturer should make payments to the son (the residuary beneficiary). Paying the daughter or the corporation would ignore the estate plan and any potential invalidity of the gratuitous assignment; paying the manufacturer would be incorrect because the right to receive payments did not stay with the manufacturer.