Celebrity Estates

verything that one needs to know about the rise and fall of wealth, estate planning…and the human condition itself, is on display in the daily headlines about our society's celebrities. Here, we discuss the marketability of celebrity status by estates, copyrights and royalties, prenuptial agreements, and family partnerships.

Celebrated Fortunes

One thing that sets celebrity estates apart from ordinary estates is the value of the celebrity's name. A recognizable name like that of actor Paul Newman is marketable and can become the figurehead for an entire food line. George Foreman became famous as a boxer but his name is now associated with an electric grill.

The value of celebrity status can be used to generate a stream of income that continues after the death of the celebrity. For example, a celebrity may have written books which continue to generate royalties after the celebrity's death. Jerry Garcia was a musician and his estate benefits from royalties on his music. In addition, his estate can utilize the marketability of Garcia's name by selling neckties featuring original art by Garcia.

The rise and fall of Martha Stewart's fortunes demonstrate the risks in staking an enterprise on good will toward one particular person. Martha Stewart capitalized on her name and expanded from television into publishing and partnered with Kmart to market a line of Martha Stewart Living merchandise. But after being accused of using insider information to sell her shares of the ImClone biotechnology firm, the Martha Stewart empire has been reeling from negative publicity. Ms. Stewart owns 30.7 million shares in her own company, so the fall of her stock from $19.01 to $5.26 wiped out $422 million of her $650-million net worth at one point. The stock has rebounded slightly since then, but Ms. Stewart has fallen off the Forbes list of the 400 wealthiest Americans.

Stardom & Copyrights

Being familiar with the value of their own copyrights, some wealthy artists have invested in the copyrights of other artists. In 1982, Michael Jackson outbid Paul McCartney and acquired rights to 251 Beatle songs for $47.5 million. McCartney fell short when Yoko Ono apparently backed out of an arrangement to jointly purchase the titles (which were mostly co-authored by John Lennon and Paul McCartney).

After acquiring that portion of the Beatles' works, Michael Jackson's estate has reportedly diminished. He had earned $500 million over the course of his career, but he currently has a net worth of $350 million. Paul McCartney, meanwhile, has flourished, both as an artist and financially, since the Beatles' breakup. Sir Paul (who was knighted in 1997) is the wealthiest rock star in the world with a net worth that recently surpassed $1 billion.

Ironically, Paul McCartney owns the publishing rights to 3,000 non-Beatle songs including the work of Buddy Holly. McCartney had joined former band-mates George Harrison and Ringo Starr in criticizing Michael Jackson for allowing Beatle songs such as "Revolution" to be used for commercial ventures. George Harrison, who died last year at the age of 58, left an estate of $155 million.

Prenuptial Contracts

A large estate can be undone by a marriage gone bad. A prenuptial agreement is used to protect an existing fortune from a large divorce settlement. Here are how several titans of the business world approached marriages late in life.

John Jacob Astor IV controlled a family real estate fortune exceeding $100 million at the start of the 20th century. In They Went That-a-Way, (Ballantine, 1988), Malcolm Forbes reports that the post office would deliver letters addressed to "The Richest Man in the World" to Astor. That title might have been accurate at the turn of the century, but by 1912, John D. Rockefeller had amassed nearly a billion dollars.

Astor was still among the world's wealthiest men when, at the age of 47, he remarried. His second wife, Madeleine, was 18 years old. To avoid the ensuing scandal, the newlyweds took an extended honeymoon in Europe. When they discovered that Madeleine was pregnant, they booked passage home on the brand new luxury liner Titanic. It was a bad choice. Astor placed his young wife on a lifeboat. "Goodbye, dearie," he reportedly said, lighting a cigarette. "I'll see you later."

Since this was a second marriage for Astor, a prenuptial agreement had been established to protect the interests of children of the previous marriage. Under the terms of the agreement, Madeleine got $1.7 million and Astor's unborn son received a trust fund of $3 million. A $5-million trust fund was also established for Madeleine. However, she was forced to relinquish her interest in the trust to remarry.

Thanks to the prenuptial agreement, much of the Astor fortune descended to John Jacob Astor's oldest son from his first marriage. Vincent Astor was listed 12th on the first Forbes list of the 30 wealthiest Americans in 1918 with a fortune of $75 million. Vincent Astor left a charitable foundation of $67 million at his death in 1959. Over the course of the next 38 years, his socialite widow, Brooke Astor, distributed $195 million. In 1997, at the age of 95, Mrs. Astor gave out the last $25 million and closed the foundation.

Jack Kent Cooke was 77 when he married Marlene, who was 37. After Marlene's behavior embarrassed him, Cooke wrote his new wife out of his will. A prenuptial agreement protected his $880-million estate and Marlene settled for $20 million.

Jack Welch, CEO of General Electric, also relied upon a prenuptial agreement. Welch was number 376 on the 2001 Forbes list of wealthy Americans with a net worth of $650 million. (Welch has since slipped off the list, apparently as a result of the stock market's decline.)

Welch's second wife was a corporate attorney who gave up her career at Welch's insistence. In 2001, Welch was interviewed by Suzy Wetlaufer, the editor of the Harvard Business Review. This meeting resulted in a relationship that led to the breakup of Welch's marriage. Although Welch had a prenuptial agreement with his second wife, that agreement had a time limit of 10 years. Since the marriage lasted more than 10 years, the prenuptial agreement was no longer in effect. Mrs. Welch is in a position to claim half of the marital estate accrued during her marriage. She has hired famed attorney William Zabel and has already turned down a $130-million settlement offer.

In 1994, Texas oilman J. Howard Marshall II was 89 when he married a former Playboy Playmate of the Year (1993), Anna Nicole Smith, who was then 26 years old. He died 14 months later with an estate estimated by some to exceed $1 billion. Although Marshall's attorney drew up a prenuptial agreement, it was never signed. Did Marshall promise Smith half his estate? Did Marshall's son interfere with a testamentary disposition? In 2001, Marshall's widow was awarded $475 million from his estate by a bankruptcy court. However, this ruling was subsequently vacated and the 6 wills and 7 property trusts Marshall had made over his lifetime reflected his intent and were found to be valid. Subsequent legal skirmishes resulted in an $88.2-million settlement for Smith in 2002.

Adult Adoption

When great wealth is inherited, there are legal strategies to keep assets "in the family." Trusts are used for this purpose and will typically provide for assets to benefit a family member and his or her "issue." Other restrictions may also be imposed to keep assets from being split up. Such restrictions lead in turn to counter-measures that attempt to legally circumvent the safeguards that have been imposed.

James Duke was a "tobacco tycoon" who amassed a fortune of $50 million and was listed on the first Forbes list of the 30 wealthiest Americans in 1918. He left his fortune to his daughter Doris Duke, who became known as the "richest girl in the world." In 1988, Miss Duke was 75 years old and her fortune had surpassed $1 billion. Having no heirs who could benefit from the trusts established by her father, Miss Duke decided to adopt a 35-year-old companion, Chandi Heffner.

When the relationship fell apart, Miss Duke was not able to divorce or "un-adopt" her companion. However, she was able to disinherit the companion in her will as follows: "I am convinced that I should not have adopted Chandi Heffner. I have come to the realization that her primary motive was financial gain. I believe that, like me, my father would not have wanted her to have benefited under the trusts which he created, and similarly, I do not wish her to benefit from my estate." (See, The Rich Die Richer, and You Can Too, John Wiley and Sons, 1995, by attorney William Zabel.)

Partnership Models

The blueprint for dissipating a family fortune has been displayed time and again in the press and the courts. Families fight over money and control. Business assets get divided. A fortune can evaporate in one generation, or over one dispute. For example, Liesel Pritzker, 18, has filed a lawsuit alleging the diversion of $1 billion from family trusts that govern the $15-billion Pritzker fortune, which includes Hyatt hotels. If successful, such a lawsuit can divide an empire and cause assets to be liquidated.

A more successful model involves the family of Sam Walton, founder of Wal-Mart. His wife and his four children are partners in the family business and all are listed in the top 10 of the Forbes list of the 400 wealthiest Americans with $18.8 billion apiece. By transferring assets early and utilizing marital and charitable deductions, this approach avoided a massive estate-tax hit at Sam Walton's death. In addition, it has kept the business intact and maintained family harmony thus far.

A Draftsman's Legacy

Thomas Jefferson is remembered as the draftsman of the Declaration of Independence. Jefferson, who was an attorney, drafted another document some 50 years later: his will. Sadly, he had been predeceased by his wife and five of his six children. Jefferson also feared that his few assets would be drained by his son-in-law's creditors. To protect his heirs, he drafted what may be the most tactful spendthrift trust ever written:

"Considering the insolvent state of the affairs of my friend & son in law Thomas Mann Randolph, and that what will remain of my property will be the only resource against the want in which his family would otherwise be left, it must be his wish, as it is my duty, to guard that resource against all liability for his debts." (See Wills of the Rich and Famous by Herbert E. Nass, Esq., Warner Books, 1991.)

Ordinary People

America is fascinated with wealth. Billionaires are considered celebrities. Since 1982, Forbes magazine has been meticulously charting the wealth of the 400 wealthiest Americans. In many ways, the list reflects our nation's fortunes. The total number of billionaires on the Forbes list, what had grown from 12 in 1982 to 298 billionaires in 2000, has since fallen to 225 billionaires.

But in the end, celebrity estates demonstrate basic human values. The fundamental things still apply: celebrities are people, after all.

© R. Moshman, 2003