8 estate planning tips for advisors with artists and entertainer clients

May 11, 2023 6:42 PM

Whether they are an award-winning musician, a successful visual artist, a television producer or a bestselling author, wealthy individuals in the creative professions can be exciting clients for financial advisors.

They can also present unique challenges to one's practice, especially when it comes to preserving the wealth they have built — often self-made, first-generation wealth — and passing it down harmoniously to their descendants and loved ones.

"A typical thing that I see is, if an artist is looking at their estate planning, some of them don't do very much planning," Rosemary Ringwald, wealth strategies advisor and head of art planning at Bank of America Private Bank, said in an interview. "I'm working with a very successful artist who is married and has children and doesn't want to face his own mortality … he's very unwilling to actually address where the art is going to go."

While she sees this with many other clients, artists often have complex estate situations, making it all the more important to plan ahead. For example, there are important ways to minimize taxes through how clients and their heirs sell or give away their creative work — such as through a tax trick Ringwald often sees, the step-up in basis.

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Often, Ringwald said, her artist clients decide to leave most of their artwork to their spouses. But will the spouse handle their art the way it was intended to be treated? How will other interested parties involved — for instance, a gallery that was representing the artist, a museum that wanted the works on loan, or a charitable foundation — fit into the picture?

Regardless of the medium a client is working in, there are many considerations that can have a bearing on the artist or entertainer's legacy. It can mean liaising with the artist's business manager, agent or dealer and estate attorneys as well as potentially other specialists, and of course their intended heirs.

We spoke with experts in estate planning from across the industry, including the RIA world as well as wirehouses and an estate planning law firm. Below are tips they gave for advisors who are looking to grow their business and challenge themselves by working with this talented client group.

Identify and protect intellectual property

Ryan Rosegarten, a senior wealth strategy associate at UBS Private Wealth Management

UBS

Often the most important form of wealth for these clients is something financial advisors aren't used to handling: the artist's creative work, which holds immense value as intellectual property.

"IP needs to be identified, insured, protected. It's considered an asset," Ryan Rosegarten, a senior wealth strategy associate at UBS Private Wealth Management, said in an interview. "It may not be a traditional stock or bond, but it's still part of their overall net worth."

For example, a music catalog, paintings, novels or television scripts could all be lucrative forms of intellectual property. Even social media content, Rosegarten said.

"There are certain corporate structures or agreements in place that own the IP rights that can then be managed by a trust," he said.

Correctly appraise assets

All assets including those related to the client's work, such as notebooks used to draft content that could one day be valuable to fans, should be properly appraised by experts to avoid potential issues if an estate is believed to have underpaid taxes, for instance.

The Internal Revenue Service fired that charge against Michael Jackson's estate, in a suit which played out in the courts for many years and was finally ruled largely in favor of the estate in 2021, although the judge said Jackson's heirs had still underestimated Jackson's image and likeness when they had reported it at a paltry $2,105.

The IRS had believed it was worth $161 million, alleging the estate had underpaid $500 million in taxes and owed $200 million more in fines. The judge concluded the Jackson image was worth $4.2 million due to reputation hits in his final years.

"What's really important is having a strategic plan in place: identifying what their assets are, how they're titled, any necessary documents or trust that needs to be executed and funded," Rosegarten said.

Stay on top of copyright management

Rosemary Ringwald, wealth strategies advisor and head of art planning at Bank of America Private Bank.

Related to that, many artists need help ensuring that the copyrights they worked to earn are protected from misuse, contribute to their heirs' continuing fortunes and are correctly transferred.

"Understanding the management of the copyright is huge," Ringwald said. "Know and do an inventory of what copyrights are actually still owned by the artists. If they transfer any of them during their lifetime … who did they give it to?"

This also means sitting with clients to identify who can have rights to handle the copyrights. A separate fiduciary outside the family may want to handle the digital assets such as NFT's, Ringwald said.

Lawyers with experience in copyright law could also be valuable to have on hand.

"It's really on the artist or the artists' estate or family to go after anyone who's using the copyright without a license, without permission," Ringwald said.

Get ready for family fun

Neil Solarz, an estate planning attorney and director at Weinstock Manion.

Artists often have unusual family dynamics to plan around, several experts said.

In particular, there are often children that "pop out of the woodwork," Neil Solarz, an estate planning attorney based in Los Angeles at law firm Weinstock Manion, said in an interview. "You need to plan either to disinherit that person specifically or otherwise provide for them. Because otherwise, if they can prove paternity, they're entitled to a share of the estate."

Solarz works with many entertainers and musicians, among other clients.

"When you represent a musician, they oftentimes have an interesting past," he chuckled. "Anybody who has worked in the music business, whether band or solo artist in rock 'n' roll, for example, they live a pretty wild lifestyle, or lived a pretty wild lifestyle."

These clients also often need help setting up a trust for their children — "they want to help their kids, but they don't trust their kids," Solarz said.

Erin Hadary, a Denver-based certified financial planner and partner at registered investment advisor Moneta Group, said many of her artistic clients "are not necessarily the traditional male-female marriage with 2.2 kids in the suburbs." Some are part of the LGBTQ+ community, and others are "strong women who refuse to get married," Hadary said.

An advisor discussing estate plans with these clients may need to shelve typical assumptions, for instance that the nearest blood relations or any biological children are the intended heirs.

"I first want to understand, what's your unique situation?" Hadary said, noting that some of her clients are childless. "They don't want family involved. They have chosen family, and their biological family is out of the picture."

Then, based on learning who are the important people to that client, she works with them to build a strategy together and take action on creating a unified estate plan.

Be flexible

A related problem is frequent "strife or shift in relationships," Hadary said. While this is a risk any client faces, it's often especially pronounced with creative individuals, in her experience.

Earlier this year, one of Hadary's clients had been upset with her daughter and then called Hadary to completely cut the daughter off from millions of dollars in potential inheritances.

"She says, 'Just take her off all of my accounts. I don't want her getting a penny!' … And so we're changing everything. We're literally updating all of her accounts," Hadary said.

The important thing is to check in frequently and to go with the flow, Hadary said, when clients change their minds. Sometimes such clients cool down later and want to change things back again. "And if you change your mind again, let me know. We'll change it," she said.

Keep it private

Many clients who have achieved fame are afraid their estate affairs will get into the press upon their death.

"Privacy is really important," Rosegarten said.

One big step to avoid that is, again, setting up trusts, "which give people the ability to have their assets managed on one's behalf by a designated trustee," Rosegarten said.

"By having trusts in place, their estate won't go through probate, which is a very public court process," he said.

Communicate accessibly

Erin Hadary, a certified financial planner and partner at registered investment advisor Moneta Group.

Many clients in the arts and entertainment business are easily bored by legalese, according to Hadary.

"Most of my clients say, 'I'm a visual learner,'" Hadary said.

To keep things interesting and accessible, she said, advisors can meet them where they are with colorful graphics, fronts and visuals.

Similarly Rosegarten, who is a certified financial planner, said he often has to help entertainer as well as athlete clients overcome a lack of financial literacy and create a "game plan" for what is often unpredictable income streams — handling sudden wealth as well as dry spells.

"In the creative world, you have to be mindful of how you get your point across, speaking in plain English so the client understands," Rosegarten said. While that is more upfront work for an advisor, "you really see, and I've seen many times, clients become really engaged."

Do comprehensive checks

Related to that, it's important not to assume that a client — even if they already have an estate plan when they come to you, even if they're a highly successful, wealthy and intelligent person — has all their ducks in a row when it comes to the estate plan. This is the most common problem Ringwald sees among advisors generally.

"Advisors should not assume that everything has been done properly… Most of the time, there's always something that hasn't been addressed. So there can always be an element of 'let's give everything a second look,'" Ringwald said.

Solarz agreed. "Oftentimes, they've missed planning opportunities," he said of entertainer plans he's reviewed. Part of this is the difficulty of predicting future income in their line of work. "Maybe at the time the plan was done, they were worth X. And now they're worth 10x."

While many are familiar with the idea of a last will and testament, there are five other important estate documents that all clients should get, Hadary said. These include a revocable living trust, medical durable power of attorney, health care directive or living will, authorization for use and disclosure of protected health information, and general durable powers of attorney for finances.

In particular, setting up powers of attorney for finances is important to guard against the possibility of a client becoming incapacitated while still alive, and maintaining the privacy of their estate at that point.

"If there's not a power of attorney in place, there's a very public guardianship court process that typically determines who should manage that client's assets," Rosegarten said.