Estate Planning for Entertainment Clients
“Estate Planning for Entertainment Clients,” that’s the subject of today’s ACTEC Trust and ESTATE Talk.
This is Travis Hayes, ACTEC Fellow from Naples, Florida. Today we will be discussing issues relating to entertainment clients such as name and likeness rights and house trusts. To give us more information on this topic you will be hearing today from ACTEC Fellow Chang Chae of Los Angeles, California. Welcome Chang.
Thank you. In talking about estate planning for entertainment clients, obviously they’re like any other clients in the regular needs that they have, but one thing that entertainment clients are unique in terms of their planning relates to the assets or the rights that they have. These can extend from having loan-out companies or dealing with royalties and residuals; it can be dealing with copyrights and other musical rights. But today, I’d like to focus on two sort of – I don’t want to say narrow topics – but two topics. One is name and likeness and, if I have time, then I’ll touch upon house trusts in a little bit.
With regard to name and likeness, I think you have to sort of look at today’s picture in terms of what today’s society is like, especially with social media. And social media, what I mean by that is, whether it’s Instagram, Snapchat, Twitter and, as my teenage kids like to say, Facebook for older people. The social media becomes important because of the number of followers that people have on social media and this can impact entertainment clients, whether it be even established actors, such as Brad Pitt. When production companies or casting agents are looking at that, they understand that a large following could present itself with an access to all of these people in terms of promoting the picture or giving some snapshots of what’s to come. And so, that becomes important for lesser talents and may be important to decide which actor or actress will be chosen. The one with obviously more followers will likely be chosen for the same role. This becomes important in terms of how you advise these clients in terms of who has access to the social media, and it becomes even more important if the celebrity or the client becomes incapacitated. And so, you want it built into your documents – the ability to have the successor fiduciaries to be able to not only have access but to be able to exploit the social media and other name and likeness rights. It may also be important at death if you’re trying to access things like photos on Instagram or Facebook or anything like that.
Another reason why social media has become important in terms of entertainment clients is the monetization of these followers. For example, there was a study done on basketball players in terms of their followers. LeBron James apparently has over 23 million followers, and there was a company that did the valuation of what his tweet–if he were to tweet something to promote one of his products– maybe it’s saying that I just opened up a bottle of Sprite this morning–they calculated that to be worth $139,474. I’m not sure how they did that, but it shows you the value of social media and how this can impact the entertainment client. Another example would be Kylie Jenner, who’s built a billion-dollar company with little overhead in part because she launches all of her products through her 175 million followers.
And so, let’s dive into the name and likeness and how this can impact the planning with respect to these entertainment clients. There are 30 states that currently recognize right of publicity, either by statute or by common law. There are fewer states that recognize this right that survives death. It could be, I think, somewhere between 20 or a little more than 20 states that recognize the post-death right of publicity. California, obviously, happens to be one of them. In California there is a Civil Code Section 3341.1, which allows celebrities’ beneficiaries or heirs to control the exploitation of the deceased celebrity’s name and likeness for things such as product endorsement or using the name and likeness on posters and t-shirts and possibly licensing rights. For instance, if they had an appearance on a show, and it allows them– it used to be 50 years– to control the name and likeness rights. Now it’s extended to 70 years. These rights might not extend to unauthorized biography or some other tribute show; in other words, it has to be some sort of exploitation for monetary means. Rights may only extend to celebrities who reside- at least as far as the California law is concerned – to celebrities who actually reside in California. Or it could be for another state with a similar sort of law. Some states, like Washington, may apply the law if the rights are exploited there. We’ll see how far that goes. For California celebrities who are residing in California, once they pass away you would have the successor fiduciaries register the rights with the California Secretary of State. It’s a nominal $10 filing fee, but that’s vitally important.
As far as planning in terms of what to do, you can certainly provide that the rights to the name and likeness rights will extend to a trust. If you don’t have that type of provision, then it’ll pass to the residuary beneficiaries or heirs if the deceased celebrity died intestate. One of the things, and you know, we do certain things when it comes to authors or artists or musicians where we may create a specific trust to hold those rights so that those–whether it’s the literary works or artwork or other things–can be exploited by certain individuals who know how to best exploit those rights.
One thing that you have to watch out, and where the IRS is more cognizant is, in terms of valuation of these name and likeness rights. I think it’s a slippery slope what the IRS is doing because it’s not a matter of just looking at the figures and saying this is the income stream that was provided during the celebrity’s lifetime in terms of how they exploited their name and likeness. The IRS might just say, just because someone is famous they automatically have a value in terms of their name and likeness, even if they never monetized their name and likeness rights or exploited them. And this becomes a slippery slope also because the IRS contends that even if they saw certain figures, they might say, well, these figures are sort of low because you didn’t either exploit them in the right way or you chose not to exploit them, which becomes a difficult matter because how do you value the potential of exploiting the name and likeness? And so, one of the things that we’ve done in terms of talking to clients about it is perhaps leaving the name and likeness rights to a surviving spouse with the idea that once the surviving spouse passes away, there’s certainly an idea as to what that income stream might look like; but also, perhaps the name and likeness rights will have gone down in value at that time. So it becomes less of a tax issue upon the surviving spouse’s death. Or, you just give it to a private foundation or some charity, and that can also take care of that.
Let me just touch briefly, because I know I’m running out of time, on the house trust. Where that becomes important for celebrities is for privacy reasons. And it’s not a be-all and end-all mechanism in terms of that, just because you have a house trust; and what a house trust means is that you would basically take title to your house in the name of the trust, and you would have a trustee that is obviously not the celebrity. It could be a business manager, it could be an entertainment attorney, it could be somebody else, it could be a brother-in-law with a different last name. And so, that person will hold legal title where that’s the name that’s shown on the deed and if somebody were to Google the celebrity’s address, then that person’s name may show up rather than the celebrity. But, we do warn the clients that that is not going to take care of the situation in all circumstances. If you have a FedEx package that’s delivered using the celebrity’s name or if you have a limo driver that comes, then that’s obviously going to sort of undermine the privacy issues. There are other issues related to house trusts where if you have a mortgage, sometimes the lender will want the celebrity’s name on, in terms of a co-trustee. Those things I can deal with or I can talk about at a different time. But that just gives you a snapshot of some of the issues that are related to when you’re planning for entertainment clients and how you can address some of these issues. So, thank you for having me today.
Thank you, Chang for educating us on the different estate planning issues for the entertainment clients.
This podcast was produced by The American College of Trust and Estate Counsel, ACTEC. Listeners, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. The material in this podcast is for information purposes only and is not intended to and should not be treated as legal advice or tax advice. The views expressed are those of speakers as of the date noted and not necessarily those of ACTEC or any speaker’s employer or firm. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. The entire contents and design of this Podcast, are the property of ACTEC, or used by ACTEC with permission, and are protected under U.S. and international copyright and trademark laws. Except as otherwise provided herein, users of this Podcast may save and use information contained in the Podcast only for personal or other non-commercial, educational purposes. No other use, including, without limitation, reproduction, retransmission or editing, of this Podcast may be made without the prior written permission of The American College of Trust and Estate Counsel.
If you have ideas for a future ACTEC Trust & Estate Talk topic, please contact us at ACTECpodcast@ACTEC.org.
© 2018 – 2020 The American College of Trust and Estate Counsel. All rights reserved.
Latest ACTEC Trust and Estate Talk Podcasts
Learn about the risks of using gift and estate tax exemption that could impact the use of the remaining gift and estate tax exemption.
The conclusion of “Truth, Transparency, and the Right of Privacy.” Duncan Osborne shares his views on balancing attorney-client privilege and an individual’s right to privacy.
Pt. 2 of Truth, Transparency, and the Right of Privacy. Duncan Osborne, a chair of the Financial Action Task Force, shares lessons learned from FATF.