ESTATE PLANNING FOR PUBLIC FIGURES
Estate planning is especially crucial for public figures in the entertainment, fashion, art and sports industries to ensure that their assets are protected and preserved both during their lifetimes and at their deaths. Without an estate plan, the government and courts decide who will inherit assets, who will become the guardian of minor children, and who will make health care and financial decisions in the event of an individual’s incapacity or incompetence, without regard to the individual’s wishes. The statutes are designed to accomplish what the government thinks an individual’s estate plan should be and rarely matches an individual’s vision for the disposition of his or her assets. If an individual wants control over these important decisions, he or she needs an estate plan. Furthermore, the death of a loved one is often distressing; however, creating an efficient estate plan will ensure that unnecessary costs and stresses are avoided during particularly difficult times.
Without an estate plan, assets are administered in the public eye through the probate process. Public figures who want privacy or confidentiality need a proper and sufficient estate plan in order to make the estate process protected and private. Deaths of public figures are already highly publicized, and an estate or probate battle will likely be portrayed in the media and further exacerbate the lack of privacy experienced by their loved ones.
Additionally, the public can gather extensive knowledge about a public figure’s estate that is administered through the probate process. As a result, individuals can claim that they deserve some of the assets, even though these claimants could be long lost relatives or friends, or even strangers looking to gain something to which they have no legal rights. These situations require the deceased individual’s loved ones to fight a lawsuit over the public figure’s assets, which can be a costly and tolling process. With an effective estate plan, including the creation of a revocable trust and/or blind trust, assets can be properly administered during life and distributed during death to protect privacy and avoid instances of outside individuals claiming these assets.
During a public figure’s lifetime, such an individual has the right to control his or her publicity and image, called the “Right of Publicity” (ROP) or personality rights. Depending on the state in which one resides, ROP may be an inheritable right, meaning that the right to control publicity or the commercial use of one’s identity can be delegated to someone else. This allows such public figures to decide what their image and property can and cannot be used for subsequent to their deaths. For instance, musicians can decide for what types of uses their music be used for in terms of commercial benefit.
Another crucial aspect of estate planning for public figures is premarital planning. The divorce rate for the general population is about 50%, and this is arguably higher for public figures in the entertainment, fashion, art and sports industries. Without a prenuptial agreement, marital assets are often split equally between both partners. A loss of assets at such a large scale is ultimately overwhelming for individuals in any industry, but can be particularly devastating to public figures with shorter career spans, such as professional athletes, who cannot recoup this loss.
In addition to addressing asset distribution, premarital agreements can also address confidentiality. In the case of a divorce, the publication of certain information could damage a public figure's reputation or career. However, confidentiality clauses in premarital agreements can designate what information is to remain confidential in the situation of a divorce. Prohibiting the disclosure of certain information through a confidentiality clause is often the best way to protect a public figure’s reputation and image.
There are many techniques that can be implemented in a public figure’s estate to avoid substantial taxes on high net worth estates; however, careful and creative planning is necessary to create such a plan. If one’s estate is above the federal and/or state estate tax threshold, which is typically the case with estates of public figures in the entertainment, fashion, art and sports industries, extraordinarily high taxes may be collected. These taxes could comprise the majority of one’s estate, taking funds away from children, spouses and other beneficiaries. With the employment of proper tax planning techniques, such as specialized irrevocable trusts, assets can be preserved in the most tax-efficient manner. For instance, many states have implemented domestic asset protection trust (DAPT) legislation for self-settled trusts. There are several types of trusts that can be strategically used to avoid certain taxes under such legislation, including irrevocable dynasty trusts. An irrevocable dynasty trust in a DAPT state helps to minimize generational transfer taxes, income taxes and other types of estate taxes that could dramatically impact the size of one’s estate.
Furthermore, many public figures have more than one place of residence; therefore, they could be subjected to multiple state income and estate taxes. However, to reduce state income taxes, it is possible to designate a specific state as one’s domicile. Domicile is the individual’s primary home; therefore, while an individual can have multiple residences, they can only have one domicile. Domicile is judged by various factors, such as the nature of the place of residence, the location of employment and business interests, community involvement, and the location of immediate family members. However, many public figures choose to designate their domicile based on the nature of the state tax jurisdiction. By choosing domicile in a state with no or low estate tax, individuals can minimize state taxes. Therefore, domicile planning is another important part of tax planning for public figures.
For any individual, it is important to designate who would gain control in the case that they become unable to make decisions on their own behalf due to incapacity or incompetence. Situations like this could arise suddenly and unexpectedly, so it is crucial to designate who will assume control of healthcare and financial decisions ahead of time. If there is no instruction, state law determines who will make decisions on the individual's behalf, and this may not reflect their wishes or intentions. These planning documents are especially crucial for public figures for various reasons. Firstly, many public figures must spend a significant amount of time traveling, and may not have time to manage their estates. In this case, a power of attorney could delegate the power to make financial decisions on the public figure’s behalf to agents, accountants, business managers or other advisors. Additionally, public figures in certain industries may be more at risk for physical trauma. For instance, professional athletes are at risk for long-term health issues which could cause them to be unable to make decisions for themselves. In this case, it would be useful to have a healthcare proxy, which is a document used to appoint another person to make health care decisions in the event that the principal is unable to do so.
Planning for Family Futures
The preservation of wealth is another important factor in estate planning for public figures. Because such individuals have often accumulated a substantial amount of wealth and assets, it is necessary to create a plan that distributes their estates responsibly. There are far too many stories of celebrities’ children or family members receiving immense sums of money and quickly diminishing it. Therefore, it is crucial to consider the age at which children can gain control over property and other assets that they may inherit, and to establish this as part of a trust. Strategies such as dynasty trusts and installment sales can be incorporated into an estate plan to efficiently preserve and protect wealth for the benefit of loved ones and their futures.
Additionally, many public figures have complicated family situations involving non-marital partners, cohabitation or the like; however, under state law, many of these family members would not inherit the public figure’s assets. As for married couples, many falsely believe that if one of them passed away, the other would receive all of their assets. Yet, the truth is that only a few states provide this outcome. In many states, the widowed spouse receives a minority of assets, with the remaining assets passing to children or others. For this reason, it is extremely important for public figures to have an estate plan that designates the individuals whom they wish to benefit or support.
Concierge Estate Planning Service
Ultimately, estate planning is especially critical for public figures. At Lara Sass & Associates, PLLC, we have the expertise and experience to implement unique, specialized strategies to preserve our clients’ legacies. In particular, we offer a Concierge Estate Planning Service that focuses exclusively on assisting ultra-high-net-worth clients whose needs have outgrown the traditional trusts and estates approach and require more proactive and dynamic planning and management. The Concierge Estate Planning Service will help to develop strategies designed to preserve intra-generational wealth and assist with the unique wealth transition issues that affect them, such as dynastic planning, legacy planning, management and control of assets, business succession planning, philanthropic and liquidity needs. We work with the client and the client's advisors to clarify the underlying dynamics of the client's situation and provide bespoke solutions, innovative technologies and sophisticated planning techniques reflective of the client's values and objectives, and engage future generations who will carry on the family legacy. Our Concierge Estate Planning Service offers strategic modeling tools and presentations to provide a client with rigorous and detailed financial, tax and estate planning illustrations that enables us to deliver timely, cutting-edge advice.
Finally, our Concierge Estate Planning Service serves as a catalyst to pull together the client’s team of advisors to ensure efficiency and effectiveness in meeting a client’s holistic financial needs, including income and estate tax, insurance, financial, asset protection, philanthropic and other planning. As part of this collaborative approach, we emphasize the ongoing need for communication and education among both advisors and family members. We create a secure online document vault to which clients and advisors have shared access, as well as an online Estate Planning Binder which will provide immediate access from any location to critical information.