The death of pop star Prince last week at the age of 57 leaves his family, friends and fans with many questions, not only about what caused his death but also about what will become of his estimated $300 million estate and future revenues it might generate.
Prince was not married and did not have children or living parents who would inherit his estate. His only sister, Tyka Nelson, reportedly has requested a probate case be opened in Carver County, Minnesota, where Prince lived. Nelson says that to her knowledge, Prince had no will specifying his final wishes.
Under Minnesota law, Prince's estate could go to his sibling and half siblings if there is no will.
"I find it incredulous that someone of Prince's stature, who was so meticulous in preserving his image and rights to his music and clearly had engaged lawyers to do this in the past, wouldn't have had the simplest of estate planning documents," said Darren Wallace, a trust and estate attorney with Day Pitney.
Alternately, "it is quite possible that a family member, even a close family member, could be unaware of planning that a relative put in place prior to death," said Laura Zwicker, partner with Greenberg Glusker, where she counsels high-net worth individuals.
In the absence of a will, the court typically appoints someone to act in the role of the executor or administrator.
"If there's no will, it's not uncommon for a family member to take on that role," said Wallace. "But there's a lot that goes into Prince's estate beyond just receiving the estate assets. They would control his entire intellectual property, including licensing Prince's image and likeness, releasing unreleased tracks, etc., so it's more than just how his fortune gets divided. It's really control of his legacy."
If Prince did create an estate plan, his membership in the Jehovah’s Witnesses could have influenced how he chose beneficiaries.
There has been plenty of speculation and conversation about Prince's estate. But Wallace says the general public may never know all of the details because there may be structures in place, such as trusts and corporate entities, that don't have to be made public.
Like many artists, Prince's estate includes intellectual property and music, including a reported underground vault full of unreleased tracks, which could continue to generate income for decades. That income will be subject to continuing taxation. In addition, who will control rights to the use of his image and likeness going forward and how revenues from that usage will be taxed will be part of estate settlement procedures.
Wallace said the death and estate of Michael Jackson could prove to be analogous to Prince's estate.
"They were contemporaries, they both died young, there are similar image and likeness issues," said Wallace. "To me, the analogy there between how their image and likeness will be controlled and the value of it and what the estate tax result will be, that to me is something of interest."
Michael Jackson's estate is currently embroiled in litigation with the IRS over the value and taxation of the singer's image and likeness. The estates of other artists such as David Bowie and Tupac Shakur also could hint at what's to come for Prince's estate.
"There’s a tremendous amount of value with respect to the works they’ve created and they generate significant revenue for licensing after their death," said Wallace. The estates are "not necessarily controversial, but the business aspects of these celebrities who die with tremendous value not just in what they’ve created but in what could be released after their death and how these celebrities will continue to be part of our culture is interesting because through the estate mechanism they can continue to be releasing works and producing revenues for their beneficiaries."
In some cases, celebrity estates do prove to be messy. Despite having a clear and well-articulated will, Robin Williams' estate ended up in court when his widow contested some of the provisions outlined in his will. With no will in place, estate settlement can become extremely messy.
Zwicker said celebrities and non-celebrities alike can follow a few steps to ensure their assets are protected and their final wishes are carried out.
“Like others, celebrities can best protect their assets and their beneficiaries by using proper trust and business entity structures that (1) protect the privacy most have jealously guarded during their lifetimes, (2) designate a clear line of fiduciaries who are well suited to manage their assets in accordance with their wishes, (3) set out clear guidelines for the management and exploitation (or non-exploitation) of their intellectual property following their deaths, and (4) designate how their assets are to be distributed to or used for the benefit of individuals and institutions that they care about,” she said.
Everyone needs a will
"I think the first thing that applies across the board, not just to celebrities but certainly anyone with wealth or unique assets, is that you are going to be better off with a thorough, well-documented estate plan that’s up to date," said Wallace. "It’s not just for celebrities. Everyone needs a will."
Significant wealth and special assets can introduce tax issues and intellectual property rights that continue beyond the death of the individual. A properly drafted estate plan can provide significant guidance and direct how things should play out.
"If an individual dies without any estate planning documents in place, he or she has not only given up the almost complete privacy and control that can be maintained when estate planning is accomplished through trusts but has also allowed the state to write his or her estate plan by allowing the intestacy laws to govern who gets what share of his or her estate," said Zwicker. "This is especially problematic where control over a celebrity’s complex intellectual property rights pass to a group of relatives who may have competing interests and agendas. In addition, where there are no planning documents in place, there is no opportunity, without court involvement, to limit who may claim to be entitled to share in the estate as a child, sibling or other intestate taker.
"Using a will or trust allows a client to specifically name those he or she wishes to benefit and specifically disinherit any other person making a claim against their estate," said Zwicker. "Because of the complex contractual and tax issues that artists, musicians, actors and writers face during their careers, they usually have a team of legal and financial advisors who ensure that there are appropriate estate planning documents in place. However, it can be very difficult to face your own mortality and, even with good advice, there are celebrities who have died with no estate planning in place. Tupac Shakur, Sonny Bono and Jimi Hendrix all died with no estate planning documents in place."
Celebrity doesn't make an estate any more likely to be contested than a non-celebrity estate, although public interest in celebrities means their estate situations are better known.
"I don’t think the celebrity piece of this is going to drive whether there is controversy or not," said Wallace. "It will really be driven by how well everything was documented and planned. And then from there probably the more interesting question is what happens next. Who is named in the will as the executor, who will be in control of the music and any unreleased music and prince’s image and likeness or were there other entities in place — corporate structures or trusts — where it will be their role in taking Prince’s vast intellectual property rights and administering them over the next half a century or more."
Choose a trusted executor
"Assuming that Prince was well advised and documented things appropriately, the most important thing will be did he have a will and who in that document is appointed as the executor," said Wallace. "You might think with an estate like this or a situation as complex as this that there might be one or more people or even institutions who are appointed to be in charge of the estate and its administration."
In Prince's case, the executor or executors will not only control the disbursement of assets on hand, such as real estate, investments and actual wealth created during his lifetime, but also his image and likeness going forward. Any unreleased music that could produce revenue in the years to come, as well as licensing of released music, will be a critical role for the executor of Prince's estate. Posthumous sales could be significant. In just a few days following Prince's death, fans reportedly bought more than 600,000 of Prince's digital and physical albums, compared with about 1,400 in the few days before his death.
"We encourage our clients to make those named in their estate planning documents as successor trustees and executors aware of their roles and of the location of their original documents so that their trustees and executors will be in a position to assume responsibility and carry out the client’s wishes," said Zwicker.
"In the ideal world, the client would share copies of their estate planning documents with their trustees and executors and discuss their wishes so that their trustees and executors will be in the best position to make the difficult decisions that will need to be made following a client’s death," continued Zwicker. "However, clients are frequently unwilling the share information about their estate planning documents even with those they have selected to carry out their wishes following their deaths because of a desire to maintain privacy and a fear that such knowledge will make it more difficult to change their estate planning documents in the future."
Celebrities are subject to more interest and speculation in life and in death than most people, but privacy is important to many.
"As part of a well-crafted estate plan, by using trusts that may not be subject to public record or using other vehicles such as corporate entities like LLCs, you can structure your assets so very little of these assets are publicly available," said Wallace. "Privacy — certainly in the case of someone like Prince, if he properly structured things — may lead us not to get very many answers. That’s what I’m expecting — that we will know less going forward than more and that’s a good lesson for anyone who has significant assets or specialty assets to protect to think about how to structure the ownership of those assets to minimize anyone who might be interested in just prying."
For celebrities and non-celebrities alike, careful estate planning can reduce the potential for invasions of privacy even in death and minimize the potential for controversy surrounding the estate.
"In addition to core estate planning documents such as a revocable trust and will, this planning might involve the creation of a private foundation to manage a client’s intellectual property following his or her death in order to benefit the charitable causes that were important to the client as well as avoid estate tax on the intellectual property," said Zwicker. "This planning might also involve planning with insurance to provide liquidity for estate tax in the event that the client wishes to have his or her intellectual property benefit non-charitable beneficiaries following his or her death. The planning should involve the creation of a structure to ensure continuity of ownership and control over the client’s intellectual property to ensure that there is a single voice able to enforce all of the client’s intellectual property rights consistently."
Provide for specialty assets
"In addition to the assets that any client may have, artists, musicians, actors and writers are likely to have complex intellectual property rights including their name and likeness, right of publicity, copyrights and royalty rights," said Zwicker. "All of these rights are likely to produce income well after an artist’s death if well managed; however, these rights are governed by a sometimes inconsistent set of state and federal laws and could become valueless if not properly managed. In addition, while these rights may be very valuable and might produce income for decades after an artist’s death, they are extremely illiquid and their value is extremely speculative, which makes paying a 40 percent estate tax on their ‘value’ within nine months of the artist’s death almost impossible without proper planning."
Celebrities and well-known artists aren't the only people who have intellectual property and specialty assets to protect, however. Photographers with a photography collection, people who own specific real estate like a family vacation home, or those with a family business they want to pass down are all examples of specialty assets that should be protected by the will and the executor, said Wallace.
Consider tax implications
The old adage that nothing is certain except for death and taxes is sadly true, and they accompany one another. Estates are taxed at a rate of 40 percent, which can take a big chunk out of inheritances and burden beneficiaries. With an estate as robust as Prince's estate, taxes will be high and will continue to be levied against future income and royalties.
"The celebrity nature of an estate opens it up to more publicity and increases the likelihood that unfounded claims to a right to share in the estate may be made," said Zwicker. "Given the position that the Internal Revenue Service has taken in the Michael Jackson estate tax litigation, it is likely that celebrity estates will be subject to greater scrutiny from the IRS in their valuation of the client’s intellectual property rights."
Properly structuring the transfer of properties during life via gifts or at death can help avoid tax issues for both celebrities and non-celebrities.
"Depending on how Prince has structured the ownership of his music, the unreleased music and going forward how his image and likeness will be rolled out, there’s a tax element to this that needs to be carefully considered," said Wallace. "That also applies to non-celebrities if they have a particular asset that has significant value — thinking about how to transfer it downstream to their family or their intended beneficiary in a way that will minimize the amount of taxes they have to pay."
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