Advanced Planning
Advanced planning is a suite of cutting edge services that help wealthy individuals and families structure their assets to be as tax-effective and secure as possible. The three components of advanced planning- wealth enhancement, estate planning and asset protection-can be offered separately or in concert to deliver the right solution for a successful entertainer.

For example, celebrities very much want to reduce the amount of money they pay in taxes. Yet only 20% of them have taken steps to curtail these taxes by taking advantage of their unique sources of income.

Consider just one advanced planning technique that could be used with celebrities: a loan-out corporation.

One actor we worked with had a net worth in excess of $50 million and an annual income of about $5 million, much of which came from his royalties and participation arrangements. He wanted to lower his income tax bill, so several years ago we established a loan-out corporation for him that was domiciled outside the United States in a country known for its favorable tax treaties. We developed a deferred compensation program within the corporation and directed his non-U.S. royalties and participations into that program. The assets in the deferred compensation program were invested in cash and cash equivalents to safeguard the principal. After one year and one day, this loan-out corporation could make interest- and principal-deferred loans. Loans are made to the actor using the assets in the deferred compensation program as funding; no current taxes are owed on the loans. This solution allows the actor to access his current earnings while decreasing his current tax obligations.

Celebrities also tend to have certain types of assets particular to the entertainment business that require advanced planning help. Recently, a composer we worked with divorced her husband of 21 years and she owed him a significant lump sum settlement. Her goal was to retain ownership of her song catalog, her largest and most valuable asset, while at the same time meeting the terms of the divorce judgment. We designed a derivative transaction to "convert" the catalog into a security. We hedged the security to create liquidity and invested 80% of the security's total value (in this case, $24 million) in a guaranteed return investment. A portion of the loan was used to satisfy the composer's obligation in her divorce settlement and pay off the loan. She will retain any residual profits. In five years, we will unwind the structure, at which time the ex-husband will have been paid in full.The composer will have realized $2.2 million in profit, and she will have complete ownership of her catalog.

Business Strategy And Support
Advisors in multifamily offices can also offer business strategy and support, handling licensing agreements or business ventures with the celebrities' names attached and helping them capitalize on their success to generate significant monies. All too often, advisors will let celebrities not well versed in these areas dive into business deals with a very limited chance of success.

When celebrities call on advisors to develop a business model, it means the advisors must go beyond the role of a traditional multifamily office, beyond the role of a business manager or even that of a management consultant, because they're tackling the client's financial and tax issues all along the way. The client's lifestyle also comes into play.

Let's consider a musician we worked with who wanted to build a company that will profit from purchasing song catalogs. The expertise we brought to the table allowed us to:

Develop the business plan with the musician, including the pro formas, and adjust the business plan as circumstances changed;

Arrange preferential financing on an ad hoc and ongoing basis for acquiring music catalogs;