Estate Planning is usually a difficult topic to discuss with clients because most people do not want to discuss their mortality. This tends to be particularly true with entertainers and professional athletes. Due to the estate issues surrounding the deaths of Michael Jackson and Steve McNair this past summer, the importance of a well-drafted estate plan has recently gained the attention of the public.
Career May Be Short and Less Predictable
Generally, most people have a professional life that spans 30 plus years. However, a Major League Baseball player has an average career of approximately 5.6 seasons along with the luxury of a guaranteed contract. In contrast, a National Football League player has an average career of about 3.5 years and a non-guaranteed contract. Recording artists may be one-hit wonders, and actors may have several years of steady earnings followed by years of little or no income. Authors and songwriters may have royalty-based income that may change over time depending upon achieved benchmarks in their contracts.
Client Interview and Estate Planning Questionnaire
An attorney must ask the right questions to learn the sources of all of his or her client’s assets and income. Professional athletes and entertainers may have income streams that resemble a very tight bell curve. These clients may also have contracts that include escalators if certain milestones are achieved. In addition to their employment contracts, these clients may also have earnings that are generated by marketing and/or licensing agreements that may change over time.
Intellectual property such as copyrights and trademarks may also be part of the estate. A client may have created a work for hire, or he may own or co-own a copyright. Understanding the ownership rights that your clients may have or may re-acquire in the future will affect an estate’s value.
Internet and social media assets may be involved. A client should own his domain name, and register his Facebook personal URL, Twitter account user name, MySpace user name, and blog. The primary and secondary domain name market is relatively fluid, so valuing these assets is not as challenging as it once was. However, social media user names may be difficult to value because a website has the ability to change its terms of service at any time, and a change may deem a social media user name non-transferable or transferable under strict guidelines. Independent valuation experts should be engaged to value any unique asset whose value is not easily discernable.
Tools to Utilize to Accomplish an Estate Plan
Generally, most clients create an estate plan to minimize tax obligations and to distribute their assets after their death. However, clients who own historically important memorabilia, artwork or intellectual property may be interested in sharing these assets with others or using these assets to benefit a particular charity or cause. A non-profit foundation or a charitable trust may be able to accomplish this goal.
High-profile clients may also become ensnared in frivolous lawsuits, so it is advisable to examine utilizing entities such as an LLC or a trust to protect an estate. To minimize tax obligations, gifting, trusts and relocation to a state with a lower tax burden should be explored. Each situation is unique and may require more than one planning tool.
An advance healthcare directive, along with a living will, provides a plan to follow in case of incapacitation. A durable power of attorney may enable an agent to make financial decisions on one’s behalf if the need arises. Even though some jurisdictions may not recognize the title of Literary Executor, authors may want to consider appointing one if this position is needed to preserve a writer’s literary legacy. Clients who are heavy users of social media may want to consider appointing an Internet-savvy Social Media Executor who focuses on a client’s virtual legacy.
Since tax and estate law may change annually, an estate plan should be reviewed at least once a year. The plan should also be examined whenever a life-changing event occurs, such as marriage, separation, divorce, the birth or adoption of a child, or a drastic change in planned future income. A client’s insurance needs may also be reviewed at this time.
Some entertainers and professional athletes may have non-traditional family situations. To minimize will and trust challenges, it is recommended to list immediate, former and possible family members who are left out of an estate plan or who are not provided for in the manner that may be expected. Even though some states do not recognize “in-terrorem” or “no-contest clauses,” this clause may be considered to minimize possible litigation.
Estate plans are not just for high-profile clients such as entertainers and professional athletes. Everyone should have an estate plan, because if one dies without one, the estate will be distributed based upon your state’s intestate succession laws, and these laws may not divide one’s assets in a manner that is consistent with one’s wishes. Therefore, it is highly recommended that everyone have an estate plan.
Bradley S. Shear is the Managing Partner of the Law Office of Bradley S.
Shear, LLC, in Bethesda, Maryland. He practices estate planning and sports
and entertainment law.