In a previous article, Estate Planning Implications of the Right of Publicity, 68 Tax Notes 95 (1995), I warned that celebrities (and their counsel) must carefully plan their estates in light of the inclusion of the value of rights of publicity for estate tax purposes under § 2033.  In the Conclusion, reprinted below the fold, I contrasted the different estate planning strategies appropriate for celebrities who zealously guard their privacy (e.g., J.D. Salinger) and for those who shamelessly exploit their celebrity (e.g., Michael Jordan).  As Tax Prof Bridget Crawford (Pace) notes, an Estate Tax Disaster Looms for Michael Jackson’s Estate if he and his counsel did not properly plan for the enormous value of his descendible right of publicity under California law.

Paul L. Caron, Estate Planning Implications of the Right of Publicity, 68 Tax Notes 95, 97 (1995):

Practitioners fortunate enough to have clients with potentially valuable descendible rights of publicity should carefully consider the estate planning implications of [Estate of Andrews v. Commissioner, 850 F. Supp. 1279 (E.D. Va. 1994). One response would be to have clients early in their careers make gifts of the right to trusts for their children or grandchildren when the value of the right is negligible . Any subsequent appreciation in the value of the right thus would escape the reach of the transfer tax. A testamentary response would be to place restrictions on the right of publicity, thereby reducing (or perhaps even eliminating) the value of the right subject to tax. A parallel approach would be to waive the decedent's interest in the right . These approaches, of course, also would reduce or eliminate the benefits to be received by the client's heirs. Another response would be to simply treat the right as any other asset to be exploited for financial gain, and to plan for the resulting estate tax burden through the use of income from the exploitation, life insurance proceeds, or otherwise.

In devising the appropriate strategy, the practitioner should, as always, carefully consider the client's wishes. For the celebrity like J.D. Salinger who has carefully protected his privacy and not exploited his name during life, failing to plan in light of Andrews would result in an estate planning disaster when the right is valued by the Service at its full exploitive value. The cash-strapped heirs would be hard pressed in this situation to respect the decedent's privacy wishes that the right of publicity is designed to protect . Proper planning for the publicity-shy celebrity may be to impose restrictions on the right of publicity to accord with his privacy interests without subjecting the heirs to an estate tax burden . In contrast, for the celebrity like Michael Jordan who has aggressively exploited his name during life, it may not make sense to impose any restrictions on the right of publicity. The best approach for such a celebrity may be to maximize the benefits to his heirs through an unfettered right of publicity, at the cost of a 55 percent estate tax bite to be paid for with the fruits of the exploitation.

Update:  Don't Mess With Taxes has more here.